6 Top Credit Myths

What You Don't Know About Credit Can Hurt You

6 Top Credit Myths
August 2, 2016

Have you received conflicting advice about how to achieve and maintain excellent credit? The persistent myths that surround credit scores and reports can lead to confusion and bad advice. Here are a few examples of credit myths that refuse to die.

1. You can improve your credit score by closing unused credit cards – Closing credit cards that you rarely use can actually decrease your credit score because they raise your credit utilization (how much credit you use versus how much you have available). If you use over 20% to 30% of your credit, it can start to affect your score — and climbing toward your maximum credit limit is definitely a red flag to creditors.

If you want to close accounts, minimize the effect by closing newer accounts and accounts with lower credit limits. Older accounts in good standing show long-term responsibility and lower risk.

2. Your credit score will drop any time you apply for credit – Credit scores can drop when a potential lender or creditor requests a "hard" credit pull, meaning that your full report is supplied. A "soft" credit pull is a shortened version that is used for preliminary steps like pre-approvals and interest rate estimates. Pulling your own credit report also counts as a soft pull.

Even a hard pull has limited effect on your credit score, dropping it by only a few points. Multiple pulls in a short period of time for the same purpose (such as comparing mortgage options) are usually considered one hard pull.

3. A credit report is the same thing as a credit score – A credit score is just that — a single score that rates your relative creditworthiness. That score is a summary of your credit report, which contains more detailed information about all of your credit and loan accounts. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.

There are several different types of credit scores. Each one of the three major credit bureaus (Experian, Equifax, and TransUnion) will issue a score, and the account information they all receive on you may not be the same. As a result, your scores from each bureau may be different. It is important to check all three credit reports to look for erroneous information.

4. Your income affects your credit score – You can have a great credit score with a very low income, and you can have a lousy credit score with a high income. The important factor is how you manage whatever money you have. Do you pay your bills on time and manage the credit you do use responsibly? Do you spend within your means? That's what creditors are looking for.

5. You have never missed a payment, therefore you have a good credit score – Certainly having an excellent payment record is an important part of maintaining a good credit score, but it is only one factor. Your payment history accounts for only 35% of your credit score. The amount that you owe makes up 30%. The length of your credit history is 15% of the score, while new credit accounts and the type of credit you use account for 10% each.

If you don't check your credit report, there is a possibility that your payment record has an erroneous entry that you do not know about. It's important to check your credit score for verification.

6. A poor credit score can cost you a job – Employers generally cannot access your credit score. They can, however, review your credit report with your permission (unless you live in one of the eight states that apply some restrictions to employer credit checks).

It's important to separate fact from fiction when it comes to credit. Don't let myths like these examples lead you astray. Use multiple sources to verify proper credit practices and weed out erroneous information, and soon you will be a fully qualified credit MythBuster.

If you would like to monitor your credit to prevent identity theft and see your credit reports and scores, check out our credit monitoring service.

Photo ©iStock.com/AzriSuratmin

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Brittany | 08.02.16 @ 15:35
A few of these I wasn't even aware were myths... good to know.
Leah | 08.02.16 @ 15:37
I wonder how well known these are? I always hear conflicting things when it comes to my credit score/report.
Elaine | 08.02.16 @ 15:37
I was well aware of a few of these but happy to learn the others. Often wondered if they were truly myths, so I guess now I know.
Heather | 08.02.16 @ 15:38
I didn't know some of these were just myths. This is great information to know and pass along.
Carla | 08.02.16 @ 15:38
I've heard most of these. It is very confusing trying to figure out what is truth and what isn't. These facts are good to know.
Sara | 08.02.16 @ 15:38
Some of these make sense. However, others I do not see how it hurts. If you do not use the card then why have it? Sometimes credit does not make sense.
Steffanie | 08.02.16 @ 15:38
Very useful information. We have a few cards we need to cancel, even though we have really good credit. It doesn't hurt to make it better.
Kate | 08.02.16 @ 15:39
I had no idea that some of the things I thought were true were actually not. This will come in handy for us now because we are in the process of buying a home.
trish | 08.02.16 @ 15:39
While most of these I was aware of, I didn't know everything involved with a few. This made things make more sense. great to print and keep at hand
Jane | 08.02.16 @ 15:40
It's interesting to see that closing a credit card line could have a negative impact on my credit. I never thought about how that would increase the percentage of my usable credit.
Cathy | 05.14.18 @ 18:54
Good to know.
Michelle | 06.24.18 @ 20:11
I want to improve my credit scored. How do I do that if I don't have any money.
John | 07.06.18 @ 17:31
I needed this guide to better credit.
Cassandra | 07.15.18 @ 13:05
I need to fix my credit but there is something on my credit that I didn't know about.
Carolyn | 07.30.18 @ 22:42
Ican't get a credit card.
Melissa | 08.05.18 @ 10:30
I really want to get some help.
Sidney | 08.26.18 @ 12:04
I need to fix my credit score. How can I do that with very little money?
Kevin | 08.26.18 @ 22:17
There is a mortgage on my credit report. I have not had a mortgage since 1980.
Pedro | 10.28.18 @ 18:06
Excellent explanation! It deals well with how credit reports are judged.
Jackie | 06.01.19 @ 01:58
Is debt consolidation always a good thing?
Thomas | 08.10.19 @ 16:19
Several tips were news to me. Tom
Carlos | 11.23.19 @ 23:27
How can I get a small personal loan to potentially help me make a purchase and work toward raising my credit score?
Brian | 03.24.20 @ 18:16
Tell me more
Matthew | 04.17.20 @ 11:18
I want only house payment
TIA | 05.24.20 @ 22:33
On the verge of bankruptcy, are debt relief options good, I've heard there are a lot of hidden costs. The attorney says bankruptcy gives you a clean slate. Opinions??? Good, bad ugly?? What are the biggest negatives?? We are home owners. Thanks
Wayne | 06.18.20 @ 19:23
USAA bank repossessed my RV and my attorney advised me to stop paying on my credit card with them as well as no more RV payments
VIJAYA | 06.19.20 @ 15:48
Prakash | 11.06.20 @ 17:47
Employment history is not correct
$commenter.renderDisplayableName() | 03.06.21 @ 11:46