Don’t believe these 8 common credit score myths

By Beth Braverman

You probably already know that you need a good credit score to get the best interest rates on a mortgage or auto loan, which can make a big difference to your budget over time.

“With something like a mortgage, even a minor difference in rates can have a big impact on your monthly payment and can mean tens of thousands of dollars or more over the life of the loan,” said Justin Pritchard, a certified financial planner and founder of Approach Financial.

But that’s just the beginning of how the three-digit number impacts your financial life.

Your credit score, a rating of your credit worthiness, can also affect the rate that you pay for insurance, your cell phone plan, and even your ability to land certain types of jobs.

But despite the importance of credit scores, they remain widely misunderstood. Here’s a look at several common misconceptions.

#1: Carrying a credit card balance will improve your score

Nearly 60% of consumers believe this myth, according to a recent survey by US New & World Report. One of the main factors in determining your credit score is your credit utilization ratio, or the percentage of your available credit that you’re using at any given time. The lower the number, the better — but aim to keep it under 30%.

“You don’t want to carry a balance, because that’s just pushing up your utilization ratio,” said Jirayr R. Kembikian, a certified financial planner with Citrine Capital.

#2: There’s only one credit score

While FICO is the most popular score provider, different types of lenders use different versions of the score. Plus, a growing number of lenders work with FICO competitors, such as VantageScore.

“There are many, many different credit scores out there, and the score that you just saw might not be the same one lenders see when they’re examining your creditworthiness,” said Matt Schulz, chief credit analyst at LendingTree.

Even if the scores are slightly different, they should trend in the same direction, Schulz added. So if one score drops significantly and the other does not, that could indicate a mistake or other issue in one of your credit reports.

#3: It costs money to check your credit

You can get your credit reports from the three major credit agencies, Equifax, Experian and TransUnion, every week for free at annualcreditreport.com. Most experts suggest checking your reports at least once per year to look for errors or evidence of identity theft, and federal law requires that the agencies allow you to do that for free. The credit agencies began offering weekly access to reports during the pandemic, but that could end soon.

“One of the best ways to improve your credit score is to fix mistakes on your credit report,” said Schulz. “People would be surprised how often mistakes happen.”

Credit reports do not include your score, but you can still get free access to certain scores through websites like LendingTree and Credit Karma, or through your credit card issuer.

#4: Closing your old credit cards can boost your score

The length of your credit history is another factor that goes into your credit score. So, keeping your oldest cards open, and occasionally using them (and paying them off) helps rather than hurts your score.

Likewise, closing an account will damage your score.

#5: Your spouse’s score can impact yours

Credit scores are for individuals, not couples. While lenders will look at both of your scores if you apply for a joint credit card or mortgage, your scores are separate. So if your spouse has a low score, it won’t affect any credit you apply for in your own name.

#6: Opening a new card will hurt your credit

Any new credit, including credit cards, will result in a short-term ding to your credit, but it won’t affect your score long-term. It’s the inquiry that the new lender performs that will likely take a few points from your score, but if you have good credit it should recover quickly.

“If you have several years of good credit behind you, you don’t need to worry about opening a new card, as long as you’re not planning to get a mortgage in the next few months,” Pritchard said.

#7: A higher income means a higher score

While lenders will consider your income when deciding the size of a loan to give you, how much money you earn is not a factor that credit agencies use to determine your score.

“You can have someone with a lower income and an excellent credit score, and you can also have the opposite — someone with a super high income and a terrible score,” Kembikian said.

#8: Co-signing on a loan won’t affect your credit

From a credit agency’s point of view, co-signing a loan is the same thing as taking out a loan on your own. That loan balance will impact your credit utilization ratio, and late payments will hurt your credit score.

“If the person you’re co-signing for is not responsible and doesn’t pay their debt, for any reason, that can have a gigantic, negative impact on your credit score,” Kembekian said.

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