When it comes to personal finance, there are few topics more confusing than credit scores and where they come from. Everyone seems to know their credit score is important, yet they don’t always know why — or what they can do to improve their score quickly without a lot of effort.
Making matters worse, the internet is also home to a treasure trove of misinformation about credit scores. Do enough googling and you will even find outright lies regarding how credit scores are determined and the factors that impact your score.
To help you cut through the nonsense and find out the steps you can take to help your credit score in the long run, we decided to break down the top credit myths you hear today. Feel free to ignore these myths from this day forward.
Myth #1: Opening a new line of credit will ruin your credit score.
While it’s commonly believed signing up for a credit card or line of credit will hurt your credit score, this isn’t typically the case. It’s true having a new hard inquiry on your credit report can temporarily ding your score, but it’s also true that having more open credit can decrease your credit utilization and boost your score.
The end result? These factors usually cancel each other out, and many times your score will actually go up a few points and stay there.
Myth #2: You need to have revolving debt to keep your credit score in good shape.
How many times have you heard someone say they keep a small balance on their credit cards to boost their score? Most of us have heard this a time or two, but it’s important to realize this strategy doesn’t work.
No matter what anyone says, you don’t have to keep a balance on your credit cards or any other loans in order to maintain a good credit score. You also don’t need to pay interest on your purchases. What you do need is to show a balance on your credit card statement, which you should pay off right away.
Myth #3: Only rich people have good credit scores.
It’s easy to believe only rich people have good credit, but this couldn’t be further from the truth. With the FICO scoring method, for example, your score is determined based on your payment history, utilization, credit mix, new credit, and the average length of your credit history.
None of those factors are impacted by how much you earn, although it may be easier to borrow money in the first place when you have plenty of income to qualify.
Myth #4: Employers can check your credit score.
It’s commonly believed that employers can check your credit score before they decide to offer you a position, but this is only partially true. In the real world, employers are able to check a modified version of your credit report before they hire you — but only if they get your permission first.
This means they may find out if you have accounts in default or a bankruptcy on your record, but they won’t have access to your actual score itself.
Myth #5: You should close credit card accounts you don’t use.
Have credit cards you no longer use on a regular basis? A lot of people think you should close them down right away, but once again, this could be a mistake.
Keeping old credit card accounts open can help increase the average length of your credit history and lower your utilization. On the flip side, closing old accounts can decrease your average credit history and increase your credit utilization — both factors that can cause your credit score to plummet in a big way.
Myth #6: It can take years to repair damage to your credit score.
A lot of consumers with poor credit assume their situation is hopeless and that they’ll never improve their credit score. The reality, however, is that there are many steps you can take to boost your score in a hurry including paying off old debts in collections, paying down debt to decrease your utilization, and paying all your bills on time.
If you need to build credit or rebuild credit but can’t get approved for a credit card, you can even check if you qualify for a secured credit card or a credit builder loan.
Myth #7: Maxing out your credit cards won’t hurt your score provided you make your payments on time.
While your payment history is the most important factor that influences your credit score, the second most important factor is the amounts you owe in relation to your credit limits. If you continually max out your credit cards and make only the minimum payment, your credit score will pay the price.
Myth #8: Checking your credit will ding your credit score.
If you’re curious how your credit score looks but worried checking it will hurt your credit in the short-term, your fears are entirely unfounded. The reality is, there are a ton of ways to get an estimate of your credit score without any impact. In fact, you can check an estimate of your credit score for free here.
Also note that the website AnnualCreditReport.com lets you check your credit report from all three credit reporting agencies — Experian, Equifax, and TransUnion — once per year. Doing so is free and it has no impact to your credit score at all.
Myth #9: You only have one credit score.
Finally, we must stop the rumor that you only have one credit score. The truth is, every individual with a credit history has multiple scores — and even more than one score within different credit scoring methods.
While the most popular type of credit score is the FICO score, there are also VantageScore credit scores. And even among types of credit scores, you’ll have more than one. For example, each of the credit reporting agencies may assign you a different FICO score based on the information they hold on your personal credit report.
The Bottom Line
There are all kinds of stories being told about credit scores and your credit health, but it’s up to you to cut through the lies and build credit that lasts. The facts above can steer you in the right direction when it comes to maintaining and building credit over time, but only if you listen.
Editorial Disclaimer: Information in these articles is brought to you by CreditSoup. Banks, issuers, and credit card companies mentioned in the articles do not endorse or guarantee, and are not responsible for, the contents of the articles. The information is accurate to the best of our knowledge when posted; however, all credit card information is presented without warranty. Please check the issuer’s website for the most current information.