Debunking Common Lies About Credit Scores: What’s Fact vs. Fiction?

If you don’t work as a personal finance writer and also aren’t planning a big purchase in the near future, you probably don’t think about your credit score all that often. It is pretty darn important to check up on it every so often, though — if you find yourself needing to borrow money (say, in the form of a personal loan or a credit card), your approval and the interest rate you’ll be given depend on it in a big way.

Credit scores are a bit mysterious for many people, and it makes sense that myths, misconceptions, and outright lies about them circulate. Let’s take a look at a few common ones, and find out the truth — knowing more about how credit scores work is going to be great for your personal finances.

“You only have one credit score”

Patently false. You actually have many credit scores, because there are multiple credit scoring models as well as three major consumer credit bureaus (TransUnion, Experian, and Equifax). Not all credit scores are created equal, however. Your FICO® Score is the one used by 90% of lenders, and when we discuss credit scores around these parts, this is usually the score we’re referring to.

When you check your credit score (say, via your credit card issuer or your bank), the score you’re given may not be as useful as you’re hoping. If you get a VantageScore, just note that the FICO scoring model is more widely used, so a lender may see something different when it pulls your credit to approve you for a loan or credit card.

“You should keep a small balance on your credit card”

Here’s another myth that just won’t die. Some people think they must never entirely pay off their credit card, because a $0 balance is bad for their credit score. This is wrong. It’s important to note that your credit card issuers and other creditors report your information to the credit bureaus at different times of the month. So just because you pay your credit card off every month doesn’t mean that your borrowing activities are invisible to your credit score.

And besides, carrying a balance on your credit card isn’t a good idea, because it can cost you extra in the form of interest charges (unless you happen to be carrying a balance on a card with an active 0% intro APR offer). Pay off your card every month, if you can.

“If you get married, your spouse’s credit score affects yours”

I caution people (particularly women) about fully combining finances with a partner. But regardless of actual shared financial accounts, you might assume that you end up with a joint credit score if you marry someone. This isn’t true, either — your credit score is yours and yours alone.

But another reason to be cautious about combining finances is that if you have, say, a credit card account with someone else, their use of the shared card can impact your credit score. If they run up a big balance and stop paying, and you can’t make those payments, you’ll both see the resulting damage on your individual credit scores.

“Checking your credit report hurts your credit score”

Does pulling your own credit report count as a hard credit inquiry from a creditor deciding whether to approve you for a loan? Worry not, as it doesn’t. Checking up on your own credit report is an excellent idea, and it’s something you should aim to do at least once a year (and perhaps more often if you’ve lost a credit card or suspect you’re the victim of some kind of fraud). Go to AnnualCreditReport.com, and you can get free copies of your credit report every week.

“Paying off your credit card and closing it helps your score”

You might assume that if you’re not using a particular credit card, or you’re concerned about overspending with it, you should just close the account and be done with it. But not so fast — closing a credit card you’ve had for a long time can actually hurt your credit score, as doing so could lower your average account age as well as potentially increase your credit utilization ratio.

This isn’t to say you should never ever close a credit card account — I actually closed my oldest one earlier this year, and saw a very small hit to my credit score (two measly points). But the card I closed charged me an annual fee, I had stopped using the card in favor of ones with better rewards programs, and the credit limit was very small, so I didn’t lose much available credit by closing it. Closing a card like this, especially if you’ve already got decent credit, is generally okay.

“Your demographic info impacts your credit score”

Finally, one more credit score lie that has hung around for long enough is the idea that your demographics (race, sex, and so on) have any impact on your credit score. Not at all — these factors appear nowhere on your credit report and as such, have no effect on your credit.

Credit scores can be a bit mysterious, but I hope this article has cleared up at least one or two myths you may have heard and perhaps even been tempted to believe until now.

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