Top 10 Credit Score Myths That Are Holding Back Your Finances

How much do you know about credit scores? This little three-digit number may seem unassuming, but it has a massive impact on your financial wellness.

In reality, bad credit could impact your ability to qualify for a home mortgage, get a car loan, obtain low interest rates, and more. Not understanding how credit scores work can hurt your credit, and there are many credit myths out there that, if believed, could impact your score negatively.

Below, we bust the top 10 credit score myths, offering expert tips on increasing your score and building a solid financial foundation for your future.

Top 10 Credit Score Myths Debunked

1. Will Checking My Credit Report Harm My Credit Score?

First up is one of the most common misconceptions about credit scores. Some think that checking your score will lower it. False! It’s wise to monitor your score regularly to catch inaccuracies and errors.

You can check your credit score for free every week using AnnualCreditReport.com, a service established by the three credit bureaus (Equifax, Experian, and TransUnion).

If you find errors on your credit history, make sure to file disputes with the credit agencies to remove those errors from your report.

2. I’m Young. Do I Have To Worry About My Credit Score Yet?

Yes! The minimum age requirement for credit card applicants is 18, if you can prove that you are independently able to make the minimum payments on the card or have a co-signer, guarantor, or joint applicant who is at least 21 and can prove they are able to make the minimum payments. Otherwise, the minimum age is 21. So, you should start building your credit as soon as possible. The sooner, the better, because the length of your credit history and account ages are two important factors that affect your score. So don’t wait to start building a solid credit history.

This doesn’t mean going into debt. Start small by getting a secured credit card from your (or your parents’) bank. You can also become an authorized user on another person’s card, which will help. Learn more about building credit from scratch in this article. Just make sure to pay on time, and don’t use more than 30% of your total available credit at any one time (credit utilization)!

3. Does Carrying a Credit Card Balance Every Month Help Your Credit Score?

No. Carrying a credit card balance from month to month actually harms your credit score, and paying the interest charges will cost you more money over time.

If you can afford to pay your credit card balances in full every month, please do. Carrying a balance will not positively impact your score. In fact, carrying a balance will negatively affect your credit utilization ratio, which lowers your credit score.

Bonus tip: Once your credit is in a good place. Consider getting a “cash back” or “points” card that gives you points for purchases that can be redeemed for cash back, travel, or other purchases and benefits. For example, some cards give 3% cash back on dining or bonus points for travel. Always make sure you pay off your statement balance each month, though; otherwise, the benefits are offset and you lose money.

4. Does the U.S. Government Own and Operate the Credit Agencies?

No. The three major credit bureaus — Equifax, Experian, and TransUnion — are independent and not owned by the U.S. government. All three are commercial companies.

The government does, however, protect your rights via the Fair Credit Reporting Act, so you can access your credit reports and dispute errors.

5. Do All Three Major Credit Bureaus Report the Same Information?

Nope. Each credit bureau is an independent commercial company that collects, analyzes, and reports on different information. They all have their own methodologies and scoring models. So, while they agree on a maximum score of 850, the number you receive from each one will vary based on how they calculate your score.

On top of that, creditors and lenders have no legal obligation to report to credit bureaus. Some might report to just one, while others may report to all three. This may impact your score from each one.

6. Does Paying Off Collection Accounts and Debt Remove Those Items From Your Credit Report?

Sadly, this is another myth. Paying off overdue debt or collection accounts doesn’t reverse the harm caused by late payments or remove the negative items from your report. Generally, negative items like missed payments or defaulted accounts will stay on your report for up to seven years.

If you have negative history on your report, you can still improve your score by making on-time payments, reducing your utilization, and paying off other debts. Consider a credit-building loan specifically designed to report positive payments to your credit history and help rebuild.

7. Can I Pay a Company to “Repair” My Credit Report

We’ve all seen them: advertisements from “credit repair” companies promising to magically fix your credit report and wipe clean those negative items — in return for a hefty fee, naturally. Don’t be fooled. Only faulty or incorrect items qualify for removal from your report, and you can file those disputes yourself for free. No need to pay someone else to do it for you.

8. Does a Low Credit Score Mean I’ll Never Get Approved for Financing?

No! Even if you have a low credit score, you may still be able to gain financing approval. However, the lower the credit score, the higher your interest rate will be.

Many people with poor credit also have shorter, less-flexible repayment periods and larger down payments. And lenders may require collateral or a co-signer before agreeing to a loan, especially if you are young with little credit history.

Just remember, it’s better to build your credit than to go into debt at an unmanageable interest rate. That situation can easily spiral out of control, leading to defaulting on loans and, in the worst-case scenario, bankruptcy.

9. Does My Credit Rating Matter If I’m Not Getting a New Loan or Credit Card?

Yes! You may think that your credit score doesn’t really matter if you’re not planning on taking out a new credit card or applying for a loan in the near future. That is unfortunately not the case.

A poor credit score can impact your life more than you may realize. Utility companies, landlords, insurance companies, and employers will often request your credit report.

The best time to work on your credit score is when you don’t need to rely on it. Using and paying off a credit card each month is a great way to build and maintain a good credit score. But make sure to monitor it, practice good financial habits otherwise, and always pay your bills on time!

10. Can Using Only Cash or Debit Cards Impact Your Credit Score?

Nope. Paying with cash and debit cards won’t affect your credit score, and it certainly won’t increase it.

Unfortunately, you have to “play to win” the credit score game, which means using your credit, making on-time payments, and making sure your utilization is as low as possible. It’s all about establishing a positive financial history and showing you can handle debt.

Using cash or debit cards is a smart way to avoid going into debt and misusing/overusing credit, but it will not help your credit score.

What Are the Absolute Best and Most Effective Ways To Increase Your Credit Score?

• Start early, if possible
• Pay your bills on time
• Make smart financial decisions – don’t go into debt if you don’t need to, and try to build good credit for a better interest rate before you take out loans
• Use your credit, but keep utilization under 30%
• Avoid carrying balances on your credit card every month
• Manage your debt responsibly

Build a Brighter Financial Future and Strong Credit History

Hopefully, we’ve officially debunked the top ten most common credit score myths. Building a solid financial history and boosting your credit score is no easy task. Yet — nothing worth doing ever is, right?

For more information about managing debt, learning smart financial habits, and improving your credit score, stay tuned to the blog. And, if you need us to help you boost your score, we’re here!