Credit can be complicated, and unfortunately, there is a lot of misinformation out there. Several myths persist, making credit scores harder to understand for consumers. Here are seven credit myths that won’t seem to go away.
1. Debt Is Bad
While having too much debt can negatively impact your credit score and finances, not all debt is necessarily bad. Responsible borrowing can improve your financial situation and help you acquire things you couldn’t otherwise afford, such as a home, a college education, or a car. The key is to manage loan and credit payments sensibly. This demonstrates financial responsibility and can help you build a positive credit history, ultimately improving your credit score. As your credit improves, you may gain access to greater borrowing power and potentially lower interest rates.
2. Carrying a Balance Improves Your Score
Another common myth is that carrying a balance improves your credit score. For example, some people think that keeping a small balance on credit cards each month will boost their score. This isn’t the case—and you’re paying more by doing so because you’re paying interest unnecessarily. It’s better to pay bills in full each month if possible (and on time). Your score considers your credit utilization ratio—the amount of credit you’re using compared to your limits. A lower utilization rate and lower balances are better.
3. Checking Your Credit Score Hurts It
There’s a myth that simply checking your credit score will hurt it. This is not true.
As Experian* explains, "This false notion is likely based on the fact that your credit score can drop a few points when a lender checks it in connection with a credit application, which causes a hard inquiry to appear on your credit report. Checking your own credit score has no impact on your credit. Not only does checking your own credit score never hurt, regularly checking your credit can be helpful when you're trying to improve your credit score."
4. Closing Accounts Helps Your Score
Some believe that closing old accounts will help their credit score. The thinking is that fewer accounts mean less debt. In reality, keeping accounts open with zero balances helps your credit utilization ratio. Demonstrating that you have access to funds you don’t need to borrow is positive. Closing a credit card account can also shorten your credit history, which scoring models tend to reward if managed responsibly. If your old credit card doesn’t have an annual fee, you
might be better off keeping it open.
5. Paying Off a Collection Removes It from Your Report
If you’ve mismanaged debt and paid a collections agency, you might think that doing so eliminates the account from your credit report. This isn’t the case. Collections can remain on your report for up to seven years from the original delinquency date. It’s still important to pay these bills to show future lenders you’ve taken responsibility. This can help your report over time, but don’t expect an immediate jump in your score.
6. Getting Married Combines Your Credit with Your Spouse’s
You might believe that getting married means you and your spouse share credit. This is a myth. While your debt obligations can become linked, such as when you jointly apply for a mortgage, your credit histories remain separate. You don’t take on your spouse’s previous debts when you marry. There’s no credit report for couples, and reports don’t record marital status. However, if you apply jointly for a loan, the lender will likely consider both credit scores. Joint accounts will appear on both reports.
7. Credit Scores See All Debts as Equal
Another myth is that credit scores view all debts the same way. This isn’t true. Revolving debt like credit cards tends to have a bigger impact on your score than installment loans like car or student loans. High credit card balances indicate potential financial stress, while installment loans show structured repayment over time. Missing a credit card payment can hurt your score more than missing a utility bill, unless that bill goes to collections. Knowing which debts impact your score most can help you prioritize payments wisely.
Having a good credit score is important for financial health. It can help you get approved for loans and credit that support your goals. Knowing the myths and the facts can help you manage credit more effectively.
* https://www.experian.com/blogs/ask-experian/credit-myths-vs-facts/