Credit scores are a critical component of financial health, affecting everything from loan approvals to interest rates and even certain job applications. However, many misconceptions about credit scores circulate, leading people to make decisions that may not actually help—or may even harm—their credit. In this guide, we’ll debunk some of the most common myths surrounding credit scores, helping you make informed decisions that truly benefit your financial future.
Why Understanding Credit Scores Matters
Your credit score is more than just a number; it’s a tool that reflects your financial reliability and can open or close doors to various opportunities. A strong credit score can lead to lower interest rates on loans and credit cards, making large purchases like homes or cars more affordable. Conversely, a lower score can result in higher interest rates, costing you significantly more over time.
Beyond loans, your credit score can affect other aspects of your life. Many landlords check credit scores as part of their rental application process, making a good score essential for securing housing in competitive markets. Some insurance companies may use credit scores to determine policy premiums, as credit history is sometimes viewed as an indicator of risk. Additionally, certain employers, especially in finance or security-sensitive industries, may review credit reports during the hiring process to assess responsibility.
Understanding the factors that influence your credit score—like payment history, credit utilization, and the types of credit you have—allows you to take control of your financial health. By knowing the truth behind common credit myths, you’re better equipped to build a score that supports your goals, minimizes your costs, and helps ensure you’re viewed positively by lenders, landlords, insurers, and even potential employers.
Myth #1: Checking Your Credit Score Will Lower It
One of the most pervasive myths is that checking your own credit score will harm it. This belief is based on confusion between “hard” and “soft” credit inquiries.
The Truth:
There are two types of credit checks: hard inquiries and soft inquiries. When you check your credit score, it’s considered a soft inquiry and does not affect your credit score. Soft inquiries, like those you make on your own or those done for pre-approval offers, do not impact your score at all.
Hard inquiries, however, occur when you apply for new credit, such as a mortgage, auto loan, or credit card. These inquiries can temporarily lower your score by a few points because they signal that you’re seeking new credit, which can be perceived as a higher risk to lenders. Multiple hard inquiries in a short time can have a cumulative impact, so it’s best to space out applications.
Myth #2: Closing Old Credit Accounts Will Improve Your Score
It may seem logical that reducing the number of open credit accounts could improve your score by showing you’re carrying less credit. Unfortunately, closing old accounts often has the opposite effect.
The Truth:
Closing an old credit account can hurt your score in two ways:
- Reduces Credit Utilization Ratio: Credit utilization is the amount of credit you’re using compared to your total available credit. When you close a credit account, you lower your total available credit, which can increase your credit utilization ratio if you’re carrying balances on other accounts.
- Shortens Your Credit History: The length of your credit history is an important factor in calculating your score. Closing an old account, especially if it’s one of your longest-standing ones, can shorten your credit history and reduce your score.
Myth #3: Paying Off a Debt Automatically Removes It from Your Credit Report
Many people believe that once a debt is paid off, it will no longer appear on their credit report. While it’s true that paying off debt is beneficial, it doesn’t erase the record of the debt immediately.
The Truth:
After you pay off a debt, it typically remains on your credit report for seven years as part of your credit history. Positive payment history is beneficial to your score, and even negative marks—such as a paid-off collection—will diminish over time. Keeping a clean, positive payment history following payoff can continue to build your credit score over the long term.
Myth #4: You Need to Carry a Balance to Improve Your Credit Score
A popular myth is that carrying a balance on your credit cards helps boost your credit score. In reality, there’s no need to carry a balance to have a good score, and doing so can lead to unnecessary interest costs.
The Truth:
Credit scoring models favor low or zero balances on revolving accounts, as they reflect responsible credit management. Paying off your credit card balances each month demonstrates that you’re not relying heavily on credit and are financially capable of managing payments. Your score benefits from low utilization, not from carrying debt. Avoid interest charges by paying off balances, which helps improve both your credit and financial health. Explore our credit card options to find one that aligns with your financial goals.
Myth #5: Your Income Directly Impacts Your Credit Score
Some people assume that earning a higher income will automatically lead to a better credit score, but income is not a factor in credit scoring.
The Truth:
Your credit score is based on your credit behavior—not your income level. Credit scoring models consider factors like payment history, credit utilization, length of credit history, new credit inquiries, and credit mix, but income is not included in the calculation. That said, having a higher income can indirectly benefit your credit by making it easier to manage payments, reduce debt, and avoid missed payments.
Myth #6: Opening Multiple New Accounts Will Improve Your Score by Increasing Your Available Credit
The logic behind this myth is that by opening new accounts, you increase your available credit, thereby lowering your credit utilization ratio. While this technically lowers utilization, it may not have the intended positive effect.
The Truth:
Opening multiple new accounts in a short period can actually hurt your score. Each application results in a hard inquiry, and opening too many accounts in quick succession can be viewed as risky behavior by lenders. Additionally, the age of new accounts will reduce the average age of your credit history, which can also lower your score. A better approach is to gradually open accounts as needed, giving your score time to adjust and your credit history to mature.
Myth #7: All Debt is Bad for Your Credit Score
Debt often has a negative reputation, but not all debt impacts your credit score the same way. Responsible use of certain types of debt can actually improve your score.
The Truth:
Credit scoring models favor a healthy mix of credit types, such as credit cards (revolving credit) and installment loans (like auto loans or mortgages). Managing installment loans responsibly by making on-time payments can improve your credit score. The key is to keep debt at a manageable level and make payments consistently. Debt only becomes a problem when it’s high and unmanageable, or if payments are missed.
Myth #8: Using Debit Cards Helps Build Your Credit
Because debit cards are linked to bank accounts and involve regular financial transactions, some people assume using a debit card can help build credit. This is not the case.
The Truth:
Debit card usage does not impact your credit score because it doesn’t involve credit. When you use a debit card, the money is directly withdrawn from your bank account, with no credit being extended by the bank. To build credit, it’s essential to use credit products—such as credit cards or loans—that report payment activity to credit bureaus.
Myth #9: Credit Repair Companies Can Quickly Fix Your Score
Credit repair companies often advertise that they can quickly improve your credit score, sometimes promising results that seem too good to be true. In many cases, these claims are exaggerated.
The Truth:
While some credit repair companies offer legitimate services, there is no magic solution to improving your credit score quickly. Credit repair companies cannot remove accurate information from your credit report. Building or repairing credit requires time and consistent positive financial behavior, such as paying bills on time, reducing debt, and monitoring your credit report for errors.
Myth #10: You Only Have One Credit Score
The idea that there’s a single “credit score” is misleading. In reality, there are multiple credit scores, and they may vary depending on the source and scoring model.
The Truth:
There are three major credit bureaus (Equifax, Experian, and TransUnion), and each may report slightly different information. Additionally, lenders may use different scoring models, such as FICO or VantageScore, each of which weighs factors differently. As a result, your score can vary depending on where it’s pulled from. It’s helpful to monitor your credit report from all three bureaus and be aware that scores may differ slightly based on the model used.
Final Thoughts
Understanding these credit score myths can help you make smart financial decisions. If you’re looking to establish or strengthen your credit, consider UKFCU’s CreditSMART Loan a straightforward way to build credit while saving for the future. By making informed decisions—like keeping credit utilization low, avoiding unnecessary credit applications, and paying bills on time—you can take control of your credit score and improve your overall financial health.
Remember, a good credit score isn’t built overnight, but with consistency and responsible habits, you’ll be well on your way to reaching your financial goals.
