When it comes to managing your credit, there’s no shortage of advice out there. Unfortunately, not all of it is good advice. In fact, some of the most commonly held beliefs about credit are simply wrong, and if you follow them, you could be making things harder for yourself. Credit myths can affect your financial decisions, sometimes pushing you further from your goals instead of bringing you closer to financial security.
So, if you’re looking to improve your credit score or just get a better handle on how credit works, it’s time to clear the air. Below are five credit myths you need to stop believing right now — and what you should be doing instead.
1. Checking Your Credit Report Hurts Your Score
This is one of the most pervasive myths out there, and it keeps people from monitoring their own credit reports. You might hear people say, “Don’t check your credit too often, it will drop your score!” Well, let’s clear that up: checking your own credit report does NOT hurt your score. In fact, you should be checking your report regularly to ensure accuracy and catch any fraudulent activity early.
The confusion here comes from the difference between a “soft inquiry” and a “hard inquiry.” When you check your own credit, it’s considered a soft inquiry, which has no impact on your credit score whatsoever. On the other hand, when a lender checks your credit because you’re applying for a loan or a new credit card, it’s called a hard inquiry, which may affect your score slightly.
But here’s the key takeaway: checking your own credit won’t hurt you. And honestly, the only way to stay on top of your credit situation is to keep an eye on your report. Services like AnnualCreditReport.com offer free credit reports from the three major credit bureaus every 12 months, so take advantage of that and make it a habit.
2. Closing Old Credit Cards Will Improve Your Score
A lot of people believe that by closing their old, unused credit cards, they’re doing their credit score a favor. Unfortunately, this isn’t how things work. In reality, closing a credit card — especially one with a long history — could actually hurt your score. This myth comes from the idea that having too many credit cards is a bad thing, but it’s important to understand how credit utilization and credit age factor into your score.
Your credit utilization ratio — which is the amount of credit you’re using compared to your total available credit — makes up about 30% of your credit score. When you close an old card, you reduce your total available credit, which could increase your utilization ratio if you’re carrying balances on other cards. Higher utilization means a lower score.
Moreover, credit age matters. Your credit history is 15% of your FICO score, and closing an old account can shorten the length of your credit history, especially if that card has been open for many years.
So, instead of closing old cards, try keeping them open, especially if they don’t have an annual fee. If you’re not using them, put a small, recurring charge on the card (like a Netflix subscription), and pay it off in full each month. This way, the card stays active, and your score stays in good shape.
3. You Only Need a Good Credit Score if You’re Buying a House or Car
This myth might seem logical at first, but in today’s world, your credit score affects far more than just your ability to get a mortgage or auto loan. In fact, your credit score can impact everything from the interest rates you pay on loans to whether you can get approved for an apartment lease or even a job.
Some employers, especially those in industries like finance, check credit reports as part of their hiring process. They aren’t necessarily interested in your score, but they are looking for any red flags, such as unpaid debts or a history of missed payments, which could suggest financial irresponsibility.
Additionally, your credit score can affect your insurance premiums. Many insurance companies use credit-based insurance scores to help determine your rates, especially for car and home insurance. The better your credit score, the lower your premiums might be. That’s because insurers view people with higher credit scores as less risky.
So even if you’re not planning to buy a house or car anytime soon, you should still work on building and maintaining a good credit score. It can save you money in ways you might not expect.
4. Paying Off a Debt Will Automatically Remove It from Your Credit Report
It’s easy to assume that once you pay off a debt, it will disappear from your credit report, but that’s not exactly how it works. Negative marks like late payments or collections can stay on your credit report for up to seven years, even after the debt is paid off. The key difference, however, is that once a debt is marked as “paid,” it will still reflect on your report but in a much more favorable light than if it were unpaid or sent to collections.
Why is this important? Because lenders look not only at whether you have negative marks but also at how you handle them. If you’ve taken responsibility and paid off a past debt, that shows you’ve made strides to get back on track.
If you’ve been dealing with collections or charge-offs, once they’re paid, don’t expect an immediate credit score boost. That being said, over time, the impact of those negative items will lessen, and having them marked as paid will help you rebuild your credit. If you’re unsure about what’s on your credit report, make sure you check it and verify that all debts are reported accurately.
5. Carrying a Small Balance on Your Credit Card is Good for Your Credit
This is a dangerous myth that has trapped many people into paying unnecessary interest. The idea behind it is that carrying a small balance on your credit card from month to month will somehow improve your credit score. In reality, carrying a balance on your credit card does not help your credit score — it only helps the credit card companies earn more money off you in interest.
Your credit score is more influenced by your ability to make payments on time, and keeping your credit utilization low. The best way to manage your credit cards is to pay off your balance in full each month. This way, you avoid paying interest and demonstrate to lenders that you’re responsible with your credit.
Some people believe that if they don’t carry a balance, they aren’t building credit. But as long as you’re using your card and making on-time payments, you’re doing exactly what’s needed to build your credit. There’s no benefit to carrying a balance, so don’t let this myth trick you into paying more than you need to.
A Final Thought on Credit Myths
Credit can be confusing, especially with so many myths floating around. But understanding how credit really works is one of the most important steps toward achieving financial health. By letting go of these myths and focusing on the facts, you can make smarter decisions that improve your score and put you in a stronger financial position.
Remember, the key factors to a good credit score are paying bills on time, keeping your credit utilization low, and maintaining a mix of different types of credit. There are no shortcuts, but by staying disciplined, you’ll see your credit score improve over time. So, next time you hear one of these credit myths, you’ll know better!