7 Credit Myths That Just Won’t Die


There are so many myths and misunderstandings when it comes to credit reports and scores. Not understanding how they work could have a negative effect on your creditworthiness, which can cost you money in higher interest rates on loans.

Here is a list of seven common misconceptions about credit scores and the real deal behind them.

1. Myth: Closing Credit Cards Will Improve My Credit Scores

Fact: Closing many cards at once can have a negative impact on your score because it can lower the ratio of your debt to your available credit. This is also known as your credit utilization rate and is a major factor among credit scoring models. For example, if you have $20,000 in debt and $30,000 in available credit, and closing a few cards drops your available credit by $8,000, your debt-to-credit ratio will have changed — and not for the better because you ideally want to stay below 10% of your total available credit limit(s).

It is absolutely OK to close credit cards (and if you’re overspending, it could be a good idea). Just try to avoid closing too many in a short period of time. Instead, consider paying off the balances and putting them away so you are not tempted to use them.

2. Myth: Opening New Credit Will Badly Damage My Score

Fact: Applying for new credit may lower your score by a few points by generating a hard inquiry on your credit report.  But in many cases, so long as you’re not applying for lots of new credit lines at once and using your new credit responsibly, it can have a positive impact on your score in the long run.

3. Myth: Checking my Credit Will Lower My Score

Fact: No! Checking your own scores will have no impact on your credit. This is because it is considered a soft inquiry. You can check your own credit reports as often as you’d like, although you can only get a free report once per year from each bureau. (You can also get a free credit report summary, updated each month, on Credit.com.)

4. Myth: My Income Affects My Credit Scores

Fact: Your income may affect your ability to pay your bills and how much debt you can take on, but the amount should have no effect in and of itself on your credit scores. Your current and past employers may appear on your credit reports, but your income generally will not.

5. Myth: Bad Credit Never Goes Away

Fact: Not true! If you pay off delinquent accounts and use your credit responsibly, you will likely start to see your scores improve over time. Credit scores are essentially a live snapshot of your current financial status and can always go up or down. Generally, bankruptcies stay on your reports for 10 years, while other negative information will appear for seven years, but their impact on your score will lessen over time — and you can improve your scores by instituting and maintaining smart spending habits.

6. Myth: My Personal Bank Account Has an Impact on My Score

Fact: Your bank accounts are not directly linked to or listed on your traditional credit reports. However, it is important to make sure accounts are closed properly and fees do not remain charged to your account, as unpaid fees can end up at a collection agency — and collection accounts can appear on your reports.

7. Myth: I Pay my Bills on Time, so I Must Have Good Credit

Fact: Paying bills on time is a very important aspect of maintaining good credit, but other factors also come into play when building and maintaining good credit. Your payment history, the amount of your debt, the age of your credit history, new credit inquiries, and the types of credit accounts you have are all factors among credit scores. Missteps in any of these categories can lower your score, even if you always pay your bills on time.

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6 Credit Card Myths That Can Keep You From Good Credit

While most Americans use credit cards (more than 160 million Americans have them), there is still a huge part of America that is unfamiliar with what it means to be a credit cardholder. Credit card issuers have a lot of information in the pages of fine print that most people don’t read (even though they should) or may not know how it applies to them.

Everyone seems to have their own view of how credit cards work, and some of these opinions are little more than myths. Nevertheless, many believe these myths, and it can hold them back from building a good credit score. But we’re here to help clear some of these up. Here are six of these myths and the truth behind them.

1. Credit cards only lead to debt.

It’s true that some people have serious problems with credit cards, but it doesn’t mean that everyone should avoid them. Used responsibly, credit cards help you build a strong credit history, which can result in favorable rates and terms when you apply for a car loan or a home mortgage. Some cardholders never pay interest charges by paying their balances in full every month.

2. You can build credit with a debit card.

Yes, you have to supply your name, address and Social Security number to get a debit card, but how you use one won’t really help or hurt your credit. Because a debit card doesn’t represent a loan in any way, it won’t even appear on your credit report.

3. Closing your credit cards will increase your score.

This myth is very common, but it’s also completely false. Your credit score improves when you have a strong credit history of on-time payments and a low level of debt (check out these credit cards for people with good credit scores). But by canceling cards, you curtail your credit history. In addition, each time you close an account and lose available credit, you increase your debt-to-credit ratio. As that ratio rises, your credit score falls. (You can see how your credit card balances are impacting your credit score for free each month on Credit.com.)

4. It will wreck my credit if I apply for a new credit card.

This myth is false for the same reasons that lead people to believe closing their credit cards will help their score. Opening up a new credit card account increases your credit history over time, while reducing your debt to credit ratio, both of which can help your credit score. Nevertheless, it’s true that opening up a new credit card will temporarily hurt your credit score, but the effect will be minor and your score essentially ignores the inquiry entirely after a year. 

5. You need to carry a balance to build credit.

You can avoid interest by paying your entire statement balance in full, and it won’t hurt your credit score. Again, you help your credit score by having a strong record of on-time payments and a low level of debt, so paying off your debt each month can only help your score.

6. You can’t get a credit card after you’ve been in bankruptcy or foreclosure.

Those who give up on credit cards after they’ve had serious problems with their credit will have a very difficult time rebuilding their score. While you won’t be approved for most standard credit cards, you can qualify for a secured credit card. These credit cards work much like unsecured cards, but it requires the a refundable security deposit before your account can be opened. But when you make on-time payments each month, you can quickly rebuild your credit and qualify for a standard credit card, often after about a year.

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