Top 10 Credit Myths Debunked

Credit Score Misconceptions

There are numerous credit myths that may be hurting your wallet and your credit rating. These days the internet is saturated with information, and more often than not, that information is inaccurate.

Myth #1: “Balances below 30% of credit card limits will result in the highest scores.”

False. Ideally you want to keep your balances as low as possible but if you are going to apply for a mortgage having your balances (on revolving credit cards) under 10% of the aggregate limits will allow you to achieve the best credit scores that the “revolving credit” category can offer.  It is important to note that once you pay them down you should wait until the 7th of the following month to make an application for new credit since balances usually update on credit at the beginning of each month. Since lenders have started using trending credit data, borrows should be even more cautious of their revolving credit usage and payment habits before applying for a mortgage.

Myth #2: “As long as you pay the minimum, it’s good to carry a balance on your credit card.”

False. While the credit card companies do want to make money off of you through interest, it is not in your favor to perpetually carry a balance on revolving credit.  High balances on credit cards cause scores to drop dramatically and it becomes a red flag to creditors that you are at a higher risk of defaulting.  Maintaining high balances also comes at a great price since it just creates more profits for the creditors and less money for you.

Myth #3: “Authorized user accounts will not impact my credit.”

False. Authorized user accounts have the power to help and hurt consumers.  As long as the consumer has some primary credit and it has been established for 6 months an authorized user account can help  build up their scores.  If you become an authorized user and the primary on the account has a good payment history and old age of credit this can add points to your score.  On the other hand, if the account holder defaults or starts carrying very high balances the authorize user will see a negative impact on their scores even though it’s not their debt.

Myth #4: “Co-signers are not responsible for the debt.”

False. If you offer to co-sign on a loan or a lease you’re most certainly liable for the debt if the primary fails to make good on their responsibility. Any activity on these accounts will be view-able on both the co-signer’s and the primary’s credit reports, so if the primary account holder goes delinquent the cosigner will see the same impact. If you’re planning to co-sign on a account, make sure it’s with someone that you trust and that you are the one sending in the payments.  Make sure you always have complete control over your credit profile.

Myth #5: “Paying off a collection will remove the negative information from my reports.

False. This is a big one, we hear this myth every single day – if credit was this easy, we would be out of a job. Satisfying your debt with a creditor is a great start to fixing your financial and credit situation, but it does not remove the negative information from your reports and it does not necessarily make the information easier to remove.

Myth #6: “Closing unused accounts will help my credit.”

False. In fact this may end up hurting your scores. For instance, if you’re looking to close a 30 year old revolving account that you’ve never been delinquent on, once it falls off the report you may see a significant drop in scores. Once the account is inactive and closed it can fall off within a few years.  The reason it can hurt your scores to close these accounts is because it reduces your average age of credit making it younger.  Younger credit is higher risk.  Also, if you are closing a specific type of credit and you no longer will have any credit in that category it could be reducing your credit portfolio.  For example:  If you close a car lease and it is the only “installment credit” that you have you are taking a whole category of credit use away. This makes you a less balanced credit user and can drop scores. Consult an expert before taking an action that can hurt you.

Myth #7: “My scores will drop when I check my credit scores.”

False. Checking your own credit is a soft inquiry and does not impact your scores. Only when you authorize a third party to pull the scores will there be a hard inquiry that can decrease the scores. Legally each consumer has the right to pull their own scores and reports as often as they like, and legally upon request you can access one free credit report every 12 months.

Myth #8: “I make a lot of money, so I must have good credit.”

False. Your high (or low) income does not impact your credit scores directly, the only way income will cause scores to fluctuate is if you’re unable to pay your bills. Being wealthy does not necessarily mean that you pay all your bills on time.  Your income is not listed on reports and is not used to tabulate credit scores.

Myth #9: “Disputing an account will remove it from my report.”

False. The bureaus legally have to review your claim when disputing accounts on your credit reports, they have 30 days to do so. Just because they have to review the claim does not mean they will end up removing the negative information from reports.

Myth #10: “I don’t need good credit because I don’t plan on taking out a loan or opening new credit.”

False. Not only do lenders review your credit, so do insurance companies and some employers. Credit reports are also one of the first places that consumers catch fraudulent behavior and stop it before the damage spreads. You may not be planning to take out a loan anytime soon, but you should still be aware of your score and responsible with your financial habits.