Your credit score—those three magical digits—can determine whether you get approved for an apartment, car loan, or mortgage, and at what interest rate. Despite its importance, credit scores are surrounded by myths, misconceptions, and straight-up bad advice. Let's separate fact from fiction and understand what really moves the needle on your credit score.
First: How Credit Scores Actually Work
Your FICO credit score (the most common) ranges from 300 to 850 and is calculated based on five key factors:
- Payment History (35%): Do you pay bills on time?
- Credit Utilization (30%): How much of your available credit are you using?
- Length of Credit History (15%): How long have you had credit accounts?
- Credit Mix (10%): Do you have different types of credit (cards, loans, etc.)?
- New Credit (10%): How many recent credit applications have you made?
Now, let's bust some common myths.
Myth #1: Checking Your Credit Score Hurts It
❌ FALSE
Checking your own credit score is a "soft inquiry" and has zero impact on your score. In fact, you should check it regularly to monitor for errors or fraud. What does hurt your score? "Hard inquiries" from lenders when you apply for credit (but even these only have a small, temporary impact).
Myth #2: Closing Old Credit Cards Improves Your Score
❌ FALSE
Closing credit cards can actually hurt your score in two ways: (1) it reduces your total available credit, increasing your credit utilization ratio, and (2) it shortens your credit history length. Unless the card has an annual fee you can't justify, keep old cards open—even if you barely use them.
Myth #3: You Need to Carry a Credit Card Balance to Build Credit
❌ FALSE
This is one of the most expensive myths. You don't need to pay interest to build credit. Pay off your balance in full every month. Your credit score benefits from having accounts and using them responsibly—not from carrying debt and paying interest.
Myth #4: Income Affects Your Credit Score
❌ FALSE
Your salary, net worth, or bank account balance don't directly impact your credit score. Credit scoring models only look at your borrowing and repayment behavior. That said, income matters when lenders evaluate your loan applications—but it's not part of your score calculation.
Myth #5: All Debt Is Bad for Your Credit
❌ FALSE
Not all debt is created equal. Having a mix of credit types (credit cards, student loans, car loans, mortgage) can actually help your score, as long as you manage them responsibly. The key is keeping balances manageable and never missing payments.
Myth #6: Paying Off a Loan Immediately Boosts Your Score
❌ PARTIALLY FALSE
While paying off debt is financially smart, it doesn't always immediately boost your score. In fact, closing an installment loan (like a car loan) can sometimes cause a small, temporary dip because you're losing an active credit account. Don't let this stop you from paying off debt—the long-term benefit far outweighs any short-term score fluctuation.
What Actually DOES Improve Your Credit Score
Now that we've cleared up the myths, here's what you should actually focus on:
✅ Pay All Bills On Time, Every Time
Payment history is 35% of your score. Even one missed payment can drop your score significantly. Set up autopay for minimum payments to avoid this.
✅ Keep Credit Utilization Below 30%
If your credit limit is $10,000, keep your balance below $3,000. Lower is even better—ideally under 10%. High utilization signals financial stress to lenders.
✅ Become an Authorized User
If someone with good credit adds you as an authorized user on their card, their positive payment history can help build your score—even if you never use the card.
✅ Dispute Errors on Your Credit Report
Check your credit report annually (free at AnnualCreditReport.com) and dispute any errors. Incorrect late payments or accounts that aren't yours can drag down your score.
✅ Be Patient
Building great credit takes time. There's no quick fix. Consistent, responsible behavior over months and years is what creates an excellent score.
The Bottom Line
Don't fall for credit score myths that cost you money or hurt your financial progress. The formula is simpler than you think: pay on time, keep utilization low, maintain old accounts, and be patient. Your credit score isn't a mystery—it's a reflection of your financial habits.
Your Takeaway
Understanding how credit really works empowers you to make smart decisions and avoid costly mistakes. Focus on what actually matters: payment history and credit utilization. Ignore the noise, and watch your score climb.
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