Common Credit Myths Debunked
Your credit score plays a crucial role in your financial life, affecting everything from loan approvals to interest rates and even job opportunities. Unfortunately, there are many myths surrounding credit that can lead to costly mistakes. Let’s bust some of the most common credit myths and set the record straight.
Credit Myths #1: Checking Your Credit Score Hurts It
Many people believe that checking their credit score will lower it. The truth is, checking your own credit report is considered a soft inquiry, which has no impact on your score. Only hard inquiries, such as when a lender checks your credit for a loan or credit card application, can temporarily lower your score.
🔹 Tip: Regularly checking your credit report can help you spot errors and prevent identity theft. You’re entitled to a free credit report from each of the three major bureaus (Equifax, Experian, and TransUnion) once a year at AnnualCreditReport.com.
Credit Myths #2: Closing Old Credit Cards Improves Your Score
Many believe that closing unused credit cards will boost their credit score. In reality, closing an account can actually hurt your score by reducing your credit history length and increasing your credit utilization ratio (the amount of credit used vs. total credit available).
🔹 Tip: If you have an old credit card with no annual fee, keep it open and use it occasionally to maintain a healthy credit history.
Credit Myths #3: You Need to Carry a Balance to Build Credit
This is a dangerous myth that can lead to unnecessary debt. Carrying a balance on your credit card does not improve your credit score. What actually matters is on-time payments and keeping your credit utilization low.
🔹 Tip: Pay off your balance in full each month to avoid interest charges while still building positive payment history.
Myth #4: All Debt Is Bad for Your Credit
Not all debt is harmful. In fact, responsible use of credit (like paying off loans on time) can help build a strong credit history. What negatively affects your credit is missed payments, high balances, and defaulted loans.
🔹 Tip: Use credit wisely by making timely payments and keeping balances low relative to your credit limit.
Myth #5: Your Income Affects Your Credit Score
Your income is not a factor in your credit score. Credit bureaus assess your creditworthiness based on payment history, amounts owed, length of credit history, new credit inquiries, and credit mix—but not how much money you make.
🔹 Tip: Even if you earn a high income, managing your credit responsibly is key to maintaining a strong credit score.
Myth #6: Paying Off a Debt Removes It from Your Credit Report
Even after you pay off a loan or credit card, it doesn’t immediately disappear from your credit report. Positive payment history can remain for up to 10 years, while negative marks (such as late payments or collections) may stay for up to 7 years.
🔹 Tip: If you’ve had past credit issues, focus on building new positive credit habits to outweigh the negative history over time.
Final Thoughts
Understanding the truth about credit can help you make smarter financial decisions and improve your financial health. Don’t let myths hold you back—stay informed, check your credit regularly, and use credit responsibly to build a strong financial future.
Have any other credit myths you’d like debunked? Drop a comment below!
