When it comes to your financial well-being, few things are as important as your credit score. This seemingly simple three-digit number holds a lot of weight in determining whether you can qualify for loans, credit cards, or even rental applications. Unfortunately, there are many myths and misconceptions surrounding credit scores, which can lead to misunderstandings about how to improve or maintain them.
In this in-depth article, we’ll debunk some of the most common credit score myths and provide accurate insights into what really affects your credit score. By the end of this post, you’ll have a clearer understanding of how to navigate the world of credit, avoid unnecessary mistakes, and keep your financial health intact.
What is a Credit Score?
Your credit score is a numerical representation of your creditworthiness, typically ranging between 300 and 850. The score is calculated based on information in your credit report, which includes your payment history, credit utilization, and the length of your credit history. Lenders use this score to assess the risk of lending money to you.
There are several different credit scoring models, with the most popular being the FICO Score and VantageScore. Both use similar factors to calculate your score, though there may be slight differences in how they weigh each component. Regardless of the model, your score generally falls into one of the following categories:
- Excellent: 800-850
- Very Good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
Understanding how your credit score is calculated—and separating fact from fiction—is crucial to managing it effectively. Now, let’s debunk some of the most pervasive myths about credit scores.
1. Myth: Checking Your Credit Score Hurts It
This is one of the most widespread myths surrounding credit scores. Many people believe that checking their own credit score will lower it. However, this is entirely false. When you check your own credit report or score, it is considered a soft inquiry or “soft pull,” and it has no impact on your credit score.
In contrast, a “hard inquiry” or “hard pull” occurs when a lender, such as a bank or credit card issuer, checks your credit report to evaluate your creditworthiness as part of a loan or credit card application. Hard inquiries can slightly lower your score, but the impact is minimal and temporary. Generally, a single hard inquiry might lower your score by a few points, but multiple inquiries in a short period can have a more significant effect.
In fact, monitoring your credit score regularly is a good practice. It helps you stay on top of your credit health and quickly detect any inaccuracies or signs of identity theft.
2. Myth: Carrying a Balance on Your Credit Card Helps Your Score
Another common myth is that carrying a balance on your credit card from month to month will help improve your credit score. This is a dangerous misconception that can lead to unnecessary debt and high-interest payments.
The reality is that carrying a balance does not benefit your credit score. In fact, paying off your balance in full every month is the best practice for both your credit score and your financial health. The key factor here is your credit utilization ratio, which refers to the percentage of your available credit that you’re using. This ratio makes up approximately 30% of your credit score, so it’s important to keep it low—ideally under 30% of your total available credit.
For example, if you have a credit limit of $10,000, it’s best to use no more than $3,000 of that limit. Paying off your balance in full will not only help keep your utilization low but also prevent you from accruing interest charges.
3. Myth: Closing Old Credit Accounts Will Improve Your Credit Score
It might seem logical to close old or unused credit accounts, especially if you’re no longer using them. However, this can actually hurt your credit score rather than improve it. The length of your credit history accounts for about 15% of your score, so closing old accounts can reduce the average age of your credit history, which could negatively affect your score.
Additionally, closing an account reduces your overall available credit, which can increase your credit utilization ratio if you have balances on other cards. For example, if you have two credit cards with a combined limit of $10,000 and you close one with a $5,000 limit, your total available credit drops to $5,000. If you have $2,000 in debt on the remaining card, your credit utilization jumps from 20% to 40%, which could hurt your score.
Instead of closing old accounts, consider keeping them open, especially if they have no annual fees. This will help maintain a healthy length of credit history and preserve your available credit.
4. Myth: You Only Have One Credit Score
Many people think that they have a single credit score, but in reality, you have multiple scores. Credit bureaus like Equifax, Experian, and TransUnion each generate their own credit reports, which means your score can vary between them.
Furthermore, there are different scoring models, such as the FICO Score and VantageScore. These models may use the same underlying data, but they can weigh factors differently. For instance, FICO might place more emphasis on your payment history, while VantageScore may consider your recent credit behavior more heavily.
It’s also important to note that different lenders may use different scores depending on the type of credit you’re applying for. For example, an auto lender might use a version of your credit score that weighs auto loan history more heavily, while a mortgage lender could focus on long-term credit management.
Therefore, it’s a good idea to monitor all three of your credit reports and stay informed about the different scoring models to get a full picture of your credit health.
5. Myth: Paying Off a Debt Removes It From Your Credit Report
While paying off a debt is always a positive step, it doesn’t immediately remove the debt from your credit report. If the account had late payments or went into collections, it can remain on your report for up to seven years, even after the debt is fully paid.
However, paying off the debt is still beneficial because over time, the negative impact of those late payments will diminish. Additionally, having a record of paying off debt shows future lenders that you are responsible and capable of managing your finances.
If you want to remove inaccurate information from your credit report, you can file a dispute with the credit bureaus. However, accurately reported late payments and collections will remain on your report for the full seven-year period, even if the debt has been paid.
6. Myth: Your Income Directly Affects Your Credit Score
It’s easy to assume that a higher income leads to a higher credit score, but this is not true. Your income is not included in your credit report and does not directly affect your credit score. However, your income does play a role in your overall financial stability, which can indirectly influence your credit score by allowing you to manage your credit responsibly.
For example, if you have a higher income, you may find it easier to pay off credit card balances in full each month, keep your credit utilization low, and avoid late payments. Conversely, if your income is low or unstable, you may struggle to keep up with your bills, which can negatively affect your score.
While income is not a factor in calculating your credit score, lenders will often consider it when evaluating your ability to repay a loan. For instance, when you apply for a mortgage, the lender will look at your debt-to-income ratio to ensure that you can afford the monthly payments.
7. Myth: Opening Multiple Credit Cards Will Improve Your Score
While having more credit cards can potentially increase your total available credit and lower your credit utilization ratio, opening multiple new accounts in a short period can hurt your score. This is because each new account generates a hard inquiry on your credit report, and multiple hard inquiries in a short span can raise red flags for lenders.
Additionally, new credit accounts reduce the average age of your credit history, which is another factor that affects your score. If you’re planning to apply for a major loan, such as a mortgage or auto loan, it’s generally a good idea to avoid opening new credit cards in the months leading up to your application.
8. Myth: You Don’t Need to Worry About Your Credit Score if You Don’t Borrow Money
Even if you don’t plan on taking out loans or applying for credit cards, your credit score can still have a significant impact on your financial life. Many landlords, employers, and utility companies check credit scores as part of their application process. A poor credit score could result in higher security deposits, higher interest rates on insurance, or even difficulty securing an apartment or job.
Maintaining a good credit score is important for more than just borrowing money. It can affect your housing, employment, and other areas of your life, making it essential to manage your credit responsibly, even if you don’t plan on taking out new credit in the near future.
What Really Affects Your Credit Score?
Now that we’ve cleared up some of the most common myths, let’s focus on what actually impacts your credit score. While the specific weights may vary slightly between different scoring models, here are the main factors that determine your credit score:
- Payment History (35%): This is the most important factor in determining your credit score. Consistently paying your bills on time will have a positive impact, while missed or late payments can severely hurt your score.
- Credit Utilization (30%): This refers to how much of your available credit you are using. To maintain a good score, it’s best to keep your credit utilization below 30%, and ideally below 10%, of your total available credit.
- Length of Credit History (15%): The longer your credit accounts have been open, the better. This factor also takes into account the average age of all your accounts, so keeping old accounts open can be beneficial.
- Credit Mix (10%): Having a diverse mix of credit types, such as credit cards, mortgages, auto loans, and personal loans, can positively affect your score. However, it’s not necessary to have every type of credit, and it’s more important to manage the accounts you do have responsibly.
- New Credit Inquiries (10%): Each time you apply for new credit, a hard inquiry is added to your report. Too many hard inquiries in a short period can hurt your score, so it’s best to space out credit applications.
Tips for Maintaining a Healthy Credit Score
Now that you know what affects your credit score, here are some actionable tips for maintaining and improving your score:
- Pay Your Bills on Time: Late payments can have a significant negative impact on your score. Set up automatic payments or calendar reminders to ensure you never miss a due date.
- Keep Your Credit Utilization Low: Aim to use no more than 30% of your available credit, and if possible, try to keep it below 10%.
- Don’t Close Old Accounts: Keeping old accounts open can help increase the average age of your credit history, which is beneficial for your score.
- Limit Hard Inquiries: Space out your applications for new credit to avoid multiple hard inquiries in a short period.
- Monitor Your Credit Reports: Regularly check your credit reports for inaccuracies or signs of fraud. You can access free reports from each of the three major bureaus once a year at AnnualCreditReport.com.
Final Thoughts
Understanding what really impacts your credit score—and separating fact from fiction—is essential for maintaining good financial health. By debunking these common credit score myths, you’re now better equipped to improve and protect your score. Remember, building a strong credit score takes time, consistency, and responsible credit behavior.
For more information on improving your credit score, visit trusted resources like MyFICO or The Consumer Financial Protection Bureau.
