Credit Score Myths Debunked

As a consumer, you should already know that a good credit score is a key cog to your financial future. But credit scores and credit reports can be complicated topics – and as is the case with most complicated subjects, misinformation is likely to spread. In this post, we’ve taken the liberty of debunking some of the most common credit score myths that we hear today. Have a look:


  • Myth 1: Making on-time bill payments is one way to help improve a credit score.

    It’s important to make on-time bill payments, as it accounts for 35 percent – the single largest category – of the FICO score model. However, on-time payments won’t really help your score. Conversely, if you miss a payment, it can significantly hurt your score.

  • Myth 2: Closing unused credit cards will help improve a credit score.

    This isn’t necessarily true – and for two reasons. First of all, credit history plays into your credit score, so closing an account may affect that. Secondly, closing an account can also affect your credit utilization ratio, or your debt-to-credit ratio. Generally, you want this to be 30 percent or less for the best possible score.

  • Myth 3: Checking your credit report will dock your score.

    This is true, but only if it is a “hard pull.” Hard pulls are often performed by lenders during loan approval processes, and they may reduce your score by 10 points or so in the short term. Soft pulls don’t affect your credit score at all.

  • Myth 4: The more income you earn, the better credit score you’ll have.

    That’s not true, as your credit score has no correlation to your earnings.

  • Myth 5: I only have one credit score.

    That’s false. Though the FICO score is the most popular one, there are lots of different scoring models that lenders use.

  • Myth 6: Checking your credit report costs money.

    While this can be true, it doesn‘t have to be true. That’s because by law, every American is entitled to one free credit report per year from the three major credit reporting bureaus (TransUnion, Equifax, Experian).

  • Myth 7: Credit reports offer fully accurate histories of consumer financial behavior.

    Ideally, this is an accurate statement. However, it’s estimated that up to 20 percent of all Americans have some sort of error on their credit reports.

  • Myth 8: If there’s an error on my credit report, there’s nothing I can do about it.

    The potential of an error on your credit report is part of why you should be checking it at least once a year. If you find one, you should immediately dispute it. Contact the credit bureau that issued the report to dispute the inaccuracy. It will be investigated and resolved within 45 days.

  • Myth 9: A large credit card balance won’t impact my credit score as long as I make the minimum payments.

    That’s not true due to the credit utilization ratio that is taken into consideration. Generally, if this ratio is at or less than 30 percent, you’ll have a higher score than if it’s greater than 30 percent.

  • Myth 9: There’s no fast way to repair a credit score.

    This may be true depending on the various factors that have led to a low score (i.e., bankruptcy, foreclosure, etc.), however, it’s important to keep in mind that credit scoring is fluid. Just paying down credit card balances to get within the 30 percent utilization ratio can yield a significant and speedy score increase in some cases.

  • Myth 10: If I have bad credit, it will be hard to get a loan.

    There are opportunities to get loans no matter what your credit score is. However, being considered an at-risk consumer will unquestionably result in higher interest rates than if you had good or excellent credit.

In America, credit opens the door to so many things. And that’s largely the reason as to why U.S. consumers have some $3.4 trillion in outstanding debt. Yes, having good credit is essential to acquiring a credit card, taking out a mortgage and financing an automobile. On that note, it’s also important to separate fact from fiction when it comes to your credit score. Here’s a look at some of the most notable credit score myths.

11 Egregious Credit Score Myths

  1. Credit isn’t necessary: This is completely false, but not just for the aforementioned purposes of taking out a mortgage or financing a car. Employers, landlords and insurance agents may also look at your credit score in a better effort to judge what type of a professional, tenant and customer you are, respectively.
  2. Carrying a credit card balance improves your credit score: Actually, if you carry too much of a credit card balance, your score can drop. That’s why it’s important to keep credit card debt within 30 percent of your total credit limit.
  3. I only need one credit card: Keep in mind that credit history plays a role in your overall credit score. So if you have multiple credit cards that are all managed responsibly, that can help increase your score versus just having a single card.
  4. Credit scores are all the same: There are three credit reporting bureaus and all of them use different scoring formulas. FICO is the most popular, but it’s not the only one.
  5. If I close out accounts, my score will improve: This is true to a certain extent. As we noted prior, you want to keep your debt owed within 30 percent of your total credit allotment, so closing multiple accounts could cause you to go above this available credit limit. So while closing accounts may help, this strategy can also backfire on you if you’re not careful.
  6. If I settle a negative report, it will go away: While you should make every effort to settle accounts in poor standing, negatives may stay on your record for up to seven years from the time of your first delinquency.
  7. Credit limit raises aren’t good: Credit limit increases are great in that they boost your available credit limit and can lower your debt-to-credit ratio.
  8. Co-signing has zero risks: False. Co-signing can cause your credit score to take a hit if the other co-signer doesn’t take responsibility for the payments.
  9. My annual salary impacts my credit score: This is false, as your annual salary has zero impact on your credit score.
  10. I don’t need to worry about checking my credit report: Even if you have no big purchases on the horizon, checking your credit report at least once a year can help you find – and dispute – errors that may be impacting your credit score.
  11. I get penalized for checking my credit score: Performing a soft inquiry, which is what occurs when you check your credit score, has no impact on your score. It’s hard inquiries that do – and this occurs when a lender analyzes your report, typically after you apply for financing.

Your credit score is unquestionably the lifeblood of your borrowing power, so it’s only natural for you to want to put yourself in a position to have the highest score possible. After all, the higher your score, the more likely you are to be approved for financing, and the more likely that you’ll be approved for said financing with a low interest rate.

Despite the importance of your credit score – not to mention the importance of occasionally checking your credit report to ensure that there aren’t any irregularities – there are a lot of misconceptions out there about credit, credit reports and credit scores in general. Here’s a look at five myths that are often taken for fact to help settle the debate once and for all:

5 Credit Report Myths to Know

  1. I don’t need to check my credit: Many people think that if they’re good consumers and pay all of their bills on time, have good credit history, etc., that they won’t need to check their credit scores. Don’t get caught thinking like that. If you don’t have an ideal credit history, it’s important to check your report often to see if any credit repair tactics are paying off. And even if you’re an ideal consumer, it’s estimated that one out of every five Americans has an error on their credit report. Hence, checking it is really the only way to know and begin the process of disputing any errors.
  2. Checking my own score will dock it: This isn’t true, as when you check your own score it’s what’s known as a “soft inquiry.” This permits you to see the score and a limited amount of data to give you an idea of why it’s in the shape that it is and what you might need to work on to improve it. Conversely, “hard inquiries,” which are those pulled by lenders to assess your financial behavior, can hurt your score if many are done within a certain timeframe.
  3. Paying off debt will remove it from my report: While paying off a debt is likely to help your score, it won’t be removed from your report immediately. In fact, some entries can take anywhere from seven to 10 years to be removed.
  4. Reports only display one entry per debt: This is true in most cases, but in a situation where your debt is past due and has been sold off to a collection agency, both the original lender and the collection agency may appear on your report, essentially showing two negative entries.
  5. Canceling an old credit card will hurt me: This is generally false, as canceling a card will have little to no effect on your credit standing. There is one exception, however, and that’s the cancelation of a credit card with a big credit limit. This may impact your credit utilization ratio, which is essentially your debt-to-total-credit allotment percentage. Generally, your score will be better if your debt is 30 percent or less of your total limit. Bottom line – canceling an old credit card likely won’t hurt you, but it’s best to close out those with smaller limits.

Now that you can separate some credit report facts from the fiction that often accompanies them, you can be more sure of situations that either potentially help or hurt your score.