7 Credit Score Myths That Are Costing You Money
Your credit score affects more than you probably realize. It influences the interest rate on your mortgage, whether you get approved for an apartment, and in some states, even your car insurance premiums. Yet despite how important credit scores are, an enormous amount of misinformation continues to circulate.
Let's set the record straight on the most common credit score myths and replace them with facts you can actually use.
Myth 1: Checking Your Own Credit Score Hurts It
The truth: Checking your own credit score is a "soft inquiry" and has absolutely no impact on your score. You can check it daily if you want.
What does affect your score is a "hard inquiry," which happens when a lender pulls your credit as part of a loan or credit card application. Even then, a single hard inquiry typically drops your score by just 5-10 points and the effect fades within a few months.
What you should do: Check your credit score regularly. You can get free scores through your bank, credit card issuer, or services like Credit Karma. Monitoring your score helps you catch errors and track progress. You're also entitled to free weekly credit reports from all three bureaus at AnnualCreditReport.com.
Myth 2: Closing Old Credit Cards Improves Your Score
The truth: Closing old credit cards can actually hurt your score in two ways:
- It reduces your total available credit. This increases your credit utilization ratio, which is the percentage of available credit you're using. Utilization accounts for about 30% of your FICO score.
- It can shorten your credit history. The length of your credit history makes up about 15% of your score. Closing your oldest card can reduce the average age of your accounts.
What you should do: Keep old cards open, even if you rarely use them. If a card has an annual fee you don't want to pay, call and ask to downgrade to a no-fee version. If you're worried about fraud on an unused card, put a small recurring subscription on it and set up autopay.
Myth 3: You Need to Carry a Balance to Build Credit
The truth: This is one of the most expensive myths out there. You do not need to carry a balance or pay interest to build credit. In fact, paying your statement balance in full every month is the optimal strategy.
Here's how it actually works: your card issuer reports your balance to the credit bureaus once per month, usually on your statement closing date. As long as you're using the card and a balance shows up on your statement, you're demonstrating credit activity. You can then pay it off in full by the due date and owe zero interest.
What you should do: Use your credit card for regular purchases, let the statement generate, then pay the full balance by the due date. You'll build excellent credit without paying a penny in interest.
Myth 4: Your Income Affects Your Credit Score
The truth: Your income is not a factor in your credit score calculation. Neither is your employment status, your savings account balance, or your net worth.
Your FICO score is based on five factors:
- Payment history (35%): Do you pay on time?
- Credit utilization (30%): How much of your available credit are you using?
- Length of credit history (15%): How long have your accounts been open?
- Credit mix (10%): Do you have different types of credit (cards, loans, mortgage)?
- New credit inquiries (10%): Have you applied for a lot of credit recently?
A person earning $40,000 with excellent credit habits can have a higher score than someone earning $400,000 who misses payments.
What you should do: Focus on the factors that actually matter. Pay every bill on time, keep utilization below 30% (ideally below 10%), and maintain a mix of credit types over time.
Myth 5: Paying Off a Collection Account Removes It From Your Report
The truth: Paying off a collection account doesn't automatically erase it from your credit report. The account will show as "paid" rather than "unpaid," which is better, but the collection record itself can remain on your report for up to seven years from the original delinquency date.
However, newer FICO scoring models (FICO 9 and FICO 10) do ignore paid collections, and VantageScore 3.0 and 4.0 do as well. The challenge is that many lenders still use older models.
What you should do: Before paying a collection, try negotiating a "pay for delete" agreement where the collection agency agrees to remove the account from your report entirely upon payment. Get any agreement in writing. If you can't get a deletion, paying it off is still worthwhile, especially for mortgage applications where underwriters look at the full picture.
Myth 6: You Only Have One Credit Score
The truth: You have dozens of credit scores. FICO alone has multiple versions (FICO 8, FICO 9, FICO 10, plus industry-specific scores for auto loans and credit cards). Then there's VantageScore, which also has multiple versions. Each scoring model weighs factors slightly differently, and each of the three credit bureaus (Experian, Equifax, TransUnion) may have slightly different data.
The score you see on Credit Karma (VantageScore) may differ from what your mortgage lender pulls (often FICO 2, 4, or 5) or what a credit card issuer sees (often FICO 8).
What you should do: Don't obsess over a specific number. Focus on the general range. If your scores are consistently above 740 across models, you'll qualify for the best rates virtually everywhere. The specific number matters less than the overall trajectory.
Myth 7: Becoming an Authorized User Doesn't Really Help
The truth: Being added as an authorized user on someone else's credit card can significantly boost your score, especially if you have a thin credit file. The account's entire payment history often gets added to your credit report, which can increase your credit age and lower your overall utilization.
This strategy is particularly valuable for young adults, recent immigrants, or anyone rebuilding credit. However, it works both ways. If the primary cardholder misses payments or maxes out the card, it can hurt your score too.
What you should do: If you need a credit boost, ask a trusted family member with excellent credit habits to add you as an authorized user on one of their oldest cards with a low utilization rate. You don't even need to have or use the physical card to benefit.
Bonus: What Actually Builds a Great Credit Score
Now that we've cleared away the myths, here's what genuinely moves the needle:
- Pay every bill on time, every time. Set up autopay for at least the minimum payment on all accounts. One missed payment can drop your score by 50-100 points.
- Keep credit utilization low. Aim to use less than 10% of your total available credit for the best scores.
- Don't open too many accounts at once. Space out credit applications by at least 3-6 months.
- Let your accounts age. Time is your friend. The longer your accounts are open and in good standing, the better.
- Diversify your credit types. A mix of revolving credit (credit cards) and installment loans (auto, student, personal) helps your score.
- Dispute errors on your credit report. Studies have shown that a significant percentage of credit reports contain errors. Review yours at least once a year and dispute anything inaccurate.
The Bottom Line
Credit scores don't have to be mysterious. By understanding how they actually work and ignoring the myths, you can take targeted action to build and maintain excellent credit. The payoff is real: a higher score means lower interest rates, better loan terms, and thousands of dollars saved over your lifetime.
Start today: Pull your free credit report, check for errors, and make sure autopay is set up on every account. These simple steps will do more for your credit than any myth ever could.