10 Common Credit Myths Debunked

credit report

Do you know what your credit score is, or how to find out what your credit score is? Do you know how your credit score is calculated, who calculates it, or why?

Most Americans can tell you, albeit in vague terms, what a credit score is, and many of them can tell you what their personal credit score is, assuming they’re willing to share it. But most of these people fail to understand the full scope of what a credit score is and what it means, and many of them suffer from misconceptions about how credit is calculated or used.

In this guide, we’ll cover some of the most common credit myths – and debunk them.

The Prevalence of Credit Confusion

It’s not surprising to learn that many people are confused about credit and credit scores. The financial industry has historically been both opaque and notoriously complex, making it difficult for laypeople to understand what goes on behind closed bank doors – or know the “right” way to manage their finances and household economies.

The Fair Credit Reporting Act (FCRA) is a piece of legislation introduced to attempt to make the credit reporting process more streamlined, reliable, transparent, and fair to consumers. 

There are even specialist FCRA attorneys dedicated to helping people resolve disputes related to credit – and, eventually, build a better financial future. But despite the many attempts by lawmakers, content creators, financial gurus, and friendly neighbors to clarify what credit is, there are still many myths and misconceptions in active circulation.

Common Credit Myths Debunked

These are some of the most common and prevalent credit myths (none of which are true):

1.       It’s bad to check my score. It’s commonly believed that checking your score is a bad thing. That’s because there’s a small grain of truth to this myth; excessively pulling credit reports can impose a temporary and very slight penalty to your credit score, but this is relatively minor. It’s basically a safeguard to compensate for the possibility of people taking out many loans and opening many credit cards all at once – which would be a financial risk to lenders. But if you’re only checking your credit score periodically, it’s no big deal. In fact, you should be in the practice of checking your credit score at least once annually, so you can monitor for errors and resolve them if necessary.

2.       Having a credit card balance is a good thing. Some people keep an active balance on their credit cards because they believe it benefits their credit score. But the reality is that almost any significant debt is going to be slightly detrimental to your credit score, pushing your DTI ratio higher. This misconception stems from the fact that credit activity, such as paying for something with a credit card and paying off that debt later, does positively improve your credit score. Maintaining a balance is neither required nor beneficial.

3.       I can’t have a good credit score because of my low income. There is some evidence that credit scores and income are correlated. People with higher income tend to have higher credit scores. There are many reasons for this, including the fact that people with more income have more financial flexibility to pay their bills on time. However, it’s perfectly possible for even people with the lowest tiers of income to have exceptional credit scores. Income has no causational effect on the calculation of your credit score.

4.       A perfect credit score is a huge deal. If you become interested in boosting your credit score, you might seek the ultimate goal of getting the perfect 850 score. However, there isn’t much of a difference between a perfect score and a score just below perfect; you’re still treated as being in the same tier.

5.       Credit scores don’t matter to young adults. Young people often underestimate the importance of a credit score. They may already have a credit card and no current interest in buying a house, so they see their credit score as irrelevant to their lives. However, it takes many years to develop a credit score – and those early years do matter.

6.       All debt payments improve my credit score equally. Almost any debt payment, if made on time and properly, can benefit your credit score. But not all types of debt payments are equal. Credit card debt is different from installment debt (like mortgage debt) and is more valuable to pay off early.

7.       Everyone can see my credit score. You may have heard rumors that employers can check your credit score, thus allowing your credit score to impact your employment opportunities. But this isn’t generally the case. Not everyone can see your credit score, and some types of people are prohibited from using your credit score as a reason to discriminate against you.

8.       Student loans are an exception. Student loans are special loans that often come with unusual (and more forgiving) terms, leading to confusion that student loans don’t or can’t impact your credit score. However, student loans are included in credit score calculations. Don’t assume you can afford to neglect your student loan payments and still maintain a good credit score.

9.       Getting married could hurt/help my credit score. If you’re thinking about getting married, you might wonder how your spouse’s credit score will impact yours. It’s true that marrying does impact your finances, as well as your credit possibilities, but your credit scores remain individual and independent. A spouse with a sketchy financial past is not going to drag down your credit score, nor is a financial guru spouse going to boost your credit score.

10.   Closing a credit card is good for my credit score. You might think that closing out a credit card is good for your credit score, representing an action of fiscal responsibility. While closing out a credit card is sometimes the best financial move for you, it’s not going to improve your credit score.

At this point, you’ll likely have confronted at least one credit myth that you used to believe. Even if you don’t have a perfect understanding of credit scores and our national credit system, you’re in a position with more knowledge and more confidence – and you can use that to learn more, improve your credit scores, and reconcile any errors you find during the process. 

If you’re still confused about credit scores, or if you’re struggling to resolve a specific credit issue, consider talking to a professional, like an FCRA attorney or a financial advisor, to continue advancing.