Common credit myths debunked

Myth 1: Checking Your Credit Score Lowers It

Many believe checking their credit score harms it, but this is false. A soft inquiry, like checking your own score through a bank or free service, does not affect your credit. Only hard inquiries, such as those from lenders during loan applications, may cause a small, temporary dip. Regularly monitoring your score helps you stay informed without penalty.

Myth 2: Closing Old Credit Cards Boosts Your Score

Closing unused credit cards might seem like a smart move, but it can hurt your score. Your credit utilization ratio—how much credit you use versus your total limit—plays a big role in your score. Closing a card reduces your available credit, potentially increasing this ratio. It also shortens your credit history, another key factor. Unless the card has high fees, keeping it open with occasional use is often better.

Myth 3: You Only Have One Credit Score

People often assume they have a single credit score, but you have multiple. Agencies like Equifax, Experian, and TransUnion generate scores using models like FICO or VantageScore, and each may differ slightly due to varying data or calculations. Lenders may use different scores depending on the loan type. Checking reports from all three bureaus ensures you have a complete picture.

Myth 4: Carrying a Balance Improves Your Score

A common myth is that carrying a credit card balance month-to-month builds credit. In reality, paying your balance in full each month demonstrates responsible credit use and avoids costly interest. Your score benefits from timely payments and low credit utilization, not from carrying debt. Aim to pay off your card monthly to maximize your score and save money.

Myth 5: Income Affects Your Credit Score

Some believe their income directly impacts their credit score, but it doesn’t. Credit scores are based on payment history, credit utilization, length of credit history, types of credit, and inquiries—not earnings. However, income may influence loan approvals, as lenders assess your ability to repay. Focus on managing credit wisely, regardless of income, to maintain a strong score.

Conclusion

Credit myths can cloud judgment and lead to costly mistakes. By understanding the facts about credit scores, inquiries, and debt management, you can make informed financial choices. Regularly review your credit reports, pay on time, and keep utilization low to build and maintain healthy credit.