Credit scores influence major financial decisions, from loan approvals and rental applications to insurance rates and interest offers. Yet many people still hold on to outdated or misleading beliefs about how credit scores work. This guide clears up five common misconceptions so you can make informed decisions and maintain a healthy credit profile.
Myth 1: Checking Your Own Credit Score Hurts It
This is a persistent myth, but checking your own credit report is completely safe. It counts as a soft inquiry and has no effect on your score. Only hard inquiries, triggered by applications for loans or new credit lines, can cause a temporary dip in your rating.
Soft inquiries are not visible to lenders and are used only for your own tracking purposes. Regularly checking your score is actually a smart habit that helps identify errors or suspicious activity early.
Myth 2: Closing Old Accounts Improves Your Credit
In most cases, closing old accounts can do more harm than good. The length of your credit history plays a role in your score, and older accounts help boost your average account age. They also increase your total available credit, which helps lower your credit utilization ratio, a key scoring factor.
Unless the account has a high annual fee or presents security concerns, it’s usually better to leave it open. Even unused accounts with a long, clean history contribute positively.
Myth 3: Carrying a Small Balance Boosts Your Score
Carrying a balance doesn’t benefit your score and costs you interest. What credit scoring models reward is responsible usage, not debt. Paying off your balances in full each month shows lenders that you’re in control and reduces your utilization rate.
A good rule of thumb is to keep your credit utilization under 30 percent, ideally under 10. This ratio matters more than maintaining a balance from month to month.
Myth 4: Your Income Directly Affects Your Credit Score
Income is not part of your credit score calculation. Scoring models focus entirely on your credit behavior, including payment history, amounts owed, length of credit history, types of accounts, and recent activity.
While lenders may consider income when evaluating your ability to repay loans, your salary does not impact the score itself. That means two individuals with very different incomes can have nearly identical scores if they manage credit similarly.
Myth 5: You Only Have One Credit Score
You have multiple scores, not just one. Scores vary depending on the scoring model (like FICO or VantageScore) and the credit bureau reporting the information (Equifax, Experian, or TransUnion). Each model uses slightly different criteria, and each bureau may report slightly different data based on timing and information sources.
Some scores are tailored for specific types of lending, such as auto loans or mortgages. When reviewing your score, it’s important to know which model and bureau it comes from, as well as which one a lender is likely to use for your application.
Believing these myths can lead to costly decisions and missed opportunities. Understanding how credit scores really work empowers you to manage your credit wisely and protect your financial future. Regular monitoring, responsible usage, and informed decisions are the foundation of strong credit.
