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10 Credit Myths Debunked

EXPECTED READ TIME: 6 MINUTES

The idea that you're only as good as your credit can be pretty intimidating, especially when you're faced with conflicting information from every direction. Whether it's your well-meaning best friend or the first news site to pop up in a search result, misinformation abounds when it comes to credit, credit reports, and credit scores.

It's time to set the record straight on 10 common credit myths.

1. Checking Your Credit Report Hurts Your Credit Score

Despite what many people think, checking your credit report does not lower your credit score. Checking your credit report is considered a "soft inquiry," which has no effect — good or bad — on your credit. In fact, it's a good idea to review your credit report at least annually (it's free) to make sure all your information is accurate.

Your credit should only ever be affected by an inquiry when you apply for new credit. At that point, the lender will pull your credit report and check your credit score with one or more of the three major credit bureaus (Experian, Equifax, and TransUnion) to determine your creditworthiness. This is known as a "hard inquiry."

Hard inquiries — which require your permission before a company can perform them — typically decrease your credit score by five points or less. Fortunately, the drop in your credit score caused by a hard inquiry is temporary. Your score should rebound within a few months, provided everything else in your credit history remains positive.

2. Closing a Credit Card Boosts Your Credit Score

Contrary to popular belief, closing a credit card will likely lower your credit score rather improve it. The reason? Once you no longer have the credit card, you lose the available credit limit, which raises your credit utilization (a measure of how much debt you're using compared to how much you have available).

When it comes to your credit score, it's better to have a lower credit utilization ratio. This generally indicates that you're responsible with money (since you're not relying heavily on debt). It also means you're more likely to make on-time payments. Together, these two factors play a significant role in determining your overall credit score.

3. You Must Go into Debt to Build Credit

Lenders want to see that you can use and manage credit wisely, not whether you can max out a wallet full of plastic. More debt can, in some cases, reflect positive credit management, but don't start out by taking on excessive debt just to build your credit. The best way to get started building credit is simply to open a credit card, charge a small amount on it each month, and then pay it off when you receive your bill.

4. Potential Employers Can Check Your Credit Score

Employers cannot check your credit score. This is prohibited by law. When screening a prospective employee, some employers — particularly government agencies and financial institutions — can, however, check a candidate's credit report with their consent. The information they receive is a modified version of your credit report that includes data like payment history, open lines of credit, and outstanding balances. In this case, they're looking for signs of financial struggle that might indicate an increased risk for theft or fraud.

5. Your Income Influences Your Credit Score 

Neither your income nor the amount of money you have influences your credit score. The only things that matter, when it comes to your credit score, are:

  • Your payment history
  • Your credit utilization
  • Age(s) of your credit account(s)
  • Mix of credit types
  • Number of recent applications and hard inquiries

Whether you make $30,000 or $130,000, the best way to increase your credit score is to pay your bill consistently, maintain a low utilization ratio, and use credit strategically.

Neither your income nor the amount of money you have influences your credit score.

6. Having Zero Debt Improves Your Credit Score

Actually, consumers who carry some debt have higher average credit scores than individuals with less debt, as long as they have the right kind of debt — more specifically, the right variety.

Balancing a variety of secured and unsecured loans simultaneously shows lenders you're a good manager of debt. This, combined with a proven track record of on-time payments, can have a dramatic impact on your credit score.

7. You Only Have One Credit Score

Truth is, you have numerous credit scores. Experian, Equifax, and TransUnion use different information and scoring models, which means both your credit report and score will vary slightly between these three main credit bureaus. What's more, many lenders have developed their own scoring methodology, meaning you could have more than a handful of scores associated with your name.  

8. Married Couples Have Combined Credit Scores

There's no such thing as a joint credit report or score. For better or worse, you go it alone with creditworthiness — even if you're married — because your credit history is linked to you individually and all credit information is reported separately.

Keep in mind, however, that if both of your names are listed on a loan, credit card, utility bill, and/or other accounts, your credit can be affected by your spouse's actions. For instance, if you're listed on your spouse's credit card and they stop making payments, your credit will take the same dip theirs does. Plus, lenders will consider both of your credit scores when you jointly apply for new credit.

There's no such thing as a joint credit report or score.

9. It Takes Seven Years to Repair a Bad Credit Score

This is technically true, but it doesn't tell the whole story. Most negative information — such as late or missed payments, collections, charge-offs, and foreclosures — does stay on your credit report for seven years. However, certain bankruptcies remain for up to 10 years.

The good news is negative information impacts your credit score less and less as time passes, especially if you make timely payments and maintain a lower credit utilization ratio while you're waiting for the negative information to disappear. Better still, positive information remains on your credit report indefinitely as long as the associated account stays open.

10. You Can Pay to Repair Your Credit Score

Don't fall for the countless ads that promise a quick fix for your damaged credit (for a fee, of course). A credit repair agency may be able to get errors removed from your credit report, but you can often do that yourself by reviewing your credit report for errors and contacting the three credit bureaus to dispute the claim.

Honestly, the only person who can repair a legitimately poor credit score is you. And the failsafe way to do that is by making consistent payments — on time, over a period of months or years — on any loans, accounts, and debt that you may have.

A Final Word about Credit and Credit Scores

There are countless other myths and misinterpretations surrounding credit and credit scores.

One thing that's certain, however, is that the way you utilize and manage debt today can impact your credit score, as well as your overall financial well-being, for years to come.

Whether you just began using a credit card or have decades of borrowing under your belt, that's news you can take to the bank.

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