17 Credit Score Myths Debunked
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Credit Card Applications » Research » Guides » Building Credit History » Common Credit Score Myths: Are You Falling for Them?

Common Credit Score Myths: Are You Falling for Them?


Updated: January 16, 2013

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Common Credit Score Myths

Have you heard any of these little pieces of credit score wisdom before?

  • Checking your credit hurts your credit score.
  • You and your spouse share a credit score.
  • Your credit score is dependent on your age and your income.
  • Paying your bills on time is all you need to do to achieve a good credit score.
  • You need to carry a balance on your credit card in order to improve your credit score.
  • You have one credit score and one credit report – it’s the same from every credit bureau.

Sound familiar? Guess what – they are all wrong. Read on to find out the truth about these and many other common misconceptions about credit scores or check out this infographic.

Myth No.1: Checking your credit hurts your credit score.

You can check your own credit all you want, and it will never hurt your credit score.

This myth comes from a misunderstanding between a soft inquiry and a hard inquiry. Don’t know the difference? Hard inquiries are made by banks, credit card issuers, or someone else from whom you are requesting a line of credit. When you apply for a credit card, the issuer will make a hard inquiry. Too many hard inquiries can have a negative effect on your credit score. A soft inquiry is when someone looks at your credit report for reasons other than granting you credit – for example, an employer, a utility company, or you. When someone is looking for information only, not looking to give you a loan, it’s usually a soft inquiry – and these don’t hurt your score.

Myth No.2: Too many inquiries for a mortgage or auto loan will lower your
credit score.

Mortgage or car loan inquiries within 30-45 days of each other are treated as a single request.

House and car shoppers, relax. When several of these inquires arrive within about a month of each other, they will be lumped in together and treated as one request. Credit bureaus will check the dates and realize that you’re shopping around, and your credit score won’t take a hit. So, go ahead and comparison shop to your heart’s content!

Myth No.3: Closing accounts can help your credit score.

Closing accounts lowers your available credit, which can hurt your score.

Whether you’re trying to wrap up loose ends after paying off a credit card balance, or try to erase an account from your credit history, this won’t help.

First off all, closing an account doesn’t remove it from your credit history or prevent it from being factored into your credit score. Second, closing your account will lower your total available credit line, which will raise your credit utilization ratio – the total amount of your credit line that’s being used.

There are two ways that credit bureaus calculate your credit utilization. First, they look at credit utilization for each card separately, and then they look at it as a whole, across all your credit cards. A high utilization ratio in either category is bad news for your credit score.

Closing an old account can also shorten the total length of your credit history, which lowers your score. When it comes to credit history, the longer the better – so don’t close those old accounts!

Myth No.4: You need to carry a credit card balance to achieve good
credit.

Credit bureaus don’t even know whether or not you carry a balance from month to month.

Credit bureaus don’t know whether or not you carry a balance or pay it off each month. All they see is the balance from your last statement, not what you paid or didn’t pay. So why not pay it all off and save the interest charges? It won’t make a difference to the credit bureaus – only to your wallet.

Myth No.5: Your age as well as your income determines your credit
score.

The length of your credit history, not your age, affects your credit score, and your income is not reported to credit bureaus.

The younger you are when you establish a credit record, the better – because the only thing the credit companies look at is the length of your credit history. A 25-year-old who has had a credit card since age 18 will have a longer credit history than a 30-year-old who prided himself on never taking out a loan and just got his first credit card last year. A longer credit history means a higher credit score, if all other factors are equal.

Oh, and the credit bureaus don’t know how much you make – they only know if you pay your debts.

Myth No.6: Your employment history impacts your score.

Employment history has no bearing on your credit score; credit bureaus only know if you fall behind on payments.

Credit bureaus don’t have access to your employment history. If you’re unemployed and you can’t pay your bills, or if you file for unemployment, that can affect your credit score – but a credit bureau isn’t a resume – they don’t keep track of your job-hopping.

Myth No.7: Each person has a single credit score.

Each major credit bureau issues its own credit score.

Every person with a credit history has at least four different credit scores – one from each credit bureau, along with a FICO score – and each one can be different. All credit scoring organizations (Experian, TransUnion, Equifax, and FICO are the main ones) use the same data and criteria to come up with your credit score, but they each use a different method of calculation and analysis, so each one will come up with a slightly different score.

Myth No.8: You share a credit score with your spouse.

Your joint accounts may generate similar information, but you each have your own credit score based on your unique credit history.

If you have joint accounts – mortgage, car loan, credit card – then you and your spouse will share some information on your credit histories, and late payments can affect you both. Still, you each have your own unique score, and if you keep your accounts separate, your scores will have no effect on each other.

Myth No.9: When you get divorced, your credit score is no longer
affected by your ex-spouse.

If you haven’t closed all your joint accounts, your spouse can still affect your score.

You and your spouse may be divorced, but unless you close all your joint accounts, your credit histories are still wedded. If you want to disentangle all your debts, each person may need to take out a new loan to pay off their portion of the debt, so the joint account can be closed.

Myth No.10: If you handle your finances responsibly, your credit score
will be good.

The formula that determines your credit score doesn’t measure your financial responsibility; paying your bills on time, for example, only counts for 35 percent of your score, and paying off accounts and closing them can actually lower your score.

There’s a formula that credit bureaus use to determine your credit score, and “financial responsibility” isn’t one of the factors. Paying bills on time counts for 35 percent of your score, but there’s another 65 percent that includes things like length of credit history and types of credit used (mortgages, credit cards, car loans, etc.) and those don’t necessarily have anything to do with how responsible you are when it comes to money management.

Myth No.11: Staying debt-free will give you a perfect credit score.

If you never incur any debt, you’ll never prove you’re dependable enough to pay it back; being debt-free does nothing for your credit score.

Credit card bureaus don’t really care if you are in debt – they care if you make payments on time, take out different types of loans, and don’t use too much of your available credit. Doing those things make you a good credit risk, which is what they are reporting on. Using a credit card to make charges and pay them off is part of achieving and maintaining a good credit score, but being in debt is not necessarily a bad thing.

Myth No.12: It's easy to fix errors on your credit report.

Misinformation on your credit report can be difficult to correct; it’s important to catch errors early and challenge them in writing as soon as possible.

It can actually be quite difficult to correct mistakes, and most credit reports contain them. While credit bureaus are required by law to correct errors, the process can be tedious.

The Federal Trade Commission recommends including copies of any documents that support your position as well as the copy of the report itself, with the errors circled. The FTC offers a sample dispute letter on its Web site. While it's tempting, avoid paying for a credit-improvement scam: dozens of companies offer to help improve scores for a fee, but many involve questionable tactics. Instead, just stick with the basics of paying all your bills on time, staying well under your credit limit, and keeping accounts in good standing over many years.

Myth No.13: Once you have a late payment, it’s on your credit history
forever.

Most credit companies are more than willing to take a late payment off your record if you contact them soon after and explain what happened; they want to keep their customers happy.

Do this sooner rather than later – removing late payments from long ago is trickier than removing recent ones. Just call your credit card company and explain what happened, and you may be surprised at how willing they are to remove your late payment from your history. Why? Simple – they want you to keep using their card.

Just don’t do this too often, and remember to say please. You catch more flies with honey than with vinegar, as my grandmother always said.

Myth No.14: If you file for bankruptcy, your score is permanently ruined.

Many credit reporting agencies will take a bankruptcy off your report after seven years; after ten years the bankruptcy should no longer be reported at all.

Filing for bankruptcy is a bummer for your credit score, sure – but after just a year of making regular payments, your credit score will begin to improve. After seven to ten years, your score should be fully recovered. Bankruptcy isn’t a permanent black mark on your record; it just takes some time to rebuild your score. Practice good credit habits like making small charges and paying them off, and you’ll eventually see the difference.

Myth No.15: I don't need to check my credit report if I pay my bills on
time.

Nearly 80 percent of credit reports contain errors; checking yours regularly is vital.

Never count on credit bureaus having all the correct information – mistakes are too common. Check to make sure initials, social security numbers, account numbers, birthdates and addresses are correct, and also make sure that negative information from longer than seven years ago has been removed and there aren’t any hard inquiries that you didn’t make yourself.

Myth No.16: I can pay someone to fix my credit and raise my credit score.

If negative information on your report is correct, no amount of professionally-generated dispute letters will remove it from your credit report.

Sure, you can correct wrong information with some time and effort – but if negative information is correct, nothing will erase it except time; seven years, to be exact.

Myth No.17: Using a credit counseling service will destroy my credit
score.

Working with a consumer credit counseling service will not negatively impact your credit score, unless you are settling debts or otherwise negotiating the terms of agreements, in which case it may or may not affect your credit score.

Simply attending a debt management program is not impact your credit score negatively. However, if you go through debt settlement or another debt renegotiation, that can affect your credit score. If you pay a lesser amount than what you owe, this can be reported as a late payment.

If it’s apparent that you’ve been through credit counseling on your credit score, each lender may look at that information differently. Some will charge you a higher rate, some may not grant you a loan, and some might even give you a break if you explain what happened. Just because you used credit counseling doesn’t mean game over for your credit score.

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