When it comes to credit, there’s no shortage of myths and misconceptions that can mislead consumers. Misunderstanding how credit works can hurt your financial health and make it harder to achieve your financial goals. To set the record straight, let's debunk some of the most common credit myths and get to the truth about how to manage your credit effectively.
Checking your own credit report is considered a “soft inquiry” and has no impact on your credit score. In fact, regularly reviewing your credit report is a smart practice to spot errors and monitor your financial health. Only “hard inquiries,” such as those made by lenders when you apply for credit, can slightly lower your score.
Fact: While it might seem logical to close old, unused accounts, doing so can actually hurt your credit score. One key factor in calculating your score is your credit utilization ratio—how much of your available credit you're using. Closing a card reduces your available credit, which can increase your utilization ratio. Additionally, the length of your credit history matters, and closing older accounts can shorten that history.
Fact: Carrying a balance doesn’t help your credit score—paying off your balance in full every month does. While it’s important to use your credit card regularly to build credit, you don’t need to carry a balance. In fact, doing so can lead to unnecessary interest charges, increasing your debt.
Fact: While lenders will consider your income when deciding whether to approve you for credit, your income has no direct effect on your credit score. Credit scores are based on your financial behavior—how well you manage your debt, pay bills on time, and how much credit you’re using—not your income level.
Fact: Your credit score and credit report are closely related, but they are not the same thing. Your credit report is a detailed history of your credit accounts and financial activity, while your credit score is a three-digit number derived from that information. Checking your credit score gives you a general idea of your credit health, but you should also review your full credit report to see all the details.
Fact: Just because you’re approved for a loan or credit card doesn’t mean your credit is in excellent shape. Lenders may approve you for credit even if your score is mediocre, but you’ll likely pay higher interest rates and have less favorable terms. It’s important to aim for a high credit score to secure the best financial deals.
