Are These Credit Myths Costing You?

I've noticed credit advice is a lot like weight loss advice—everyone seems to have an opinion, and many times those opinions are wrong.

The problem is, there is a lot at stake.

Your credit score affects things like being approved for an apartment, the cost of borrowing money, and securing small business loans.

Your credit score is a critical part of your overall financial health.

That is why separating the myths from facts is important.

Disclosure: This post may contain affiliate links.

Myth number 1: Checking your credit score will hurt your credit score

There are two types of credit inquiries: hard and soft.

Hard inquiries usually involve a financial institution or credit card company. These occur when organizations check your score in order to make a lending decision. Hard inquiries lower your score by a few points.

Soft inquiries typically include things like background checks from potential employers or checking your own credit score. A soft inquiry will not impact your credit score.

Where to check your score

The best place to get your credit report is through The government authorizes a free report from all three of the credit reporting agencies—Experian, TransUnion, and Equifax—every twelve months.

However, it's important to keep an eye on your credit in between these annual updates.

I have been monitoring a summary of my credit report through Credit Sesame.

Here is what my dashboard looks like:

Picture of Credit Sesame Dashboard with Credit Score

Credit Sesame is a free website that offers a score from TransUnion, credit analysis, and monitoring. No credit card is required, so it’s easy to sign up.

You will need to upgrade to a paid plan if you want to receive your complete credit reports and regular monitoring from all three agencies. However, their free plan offers plenty of value if you want to stay updated in between your annual free report from

Myth number 2: Carrying a balance from month to month helps your score

This is arguably one of the most harmful (and expensive!) credit myths.

By carrying a balance from month-to-month, you are stuck paying a premium for your purchases in the form of interest.

Paying your balance in full, on time, every month is one of the best ways to boost your score. 65% of your FICO score is determined by your payment history and amounts owed. This means how often you have paid bills on time and your current amount of debt.

Myth number 3: It’s possible to have a great credit score without a credit card

Many people are afraid to use credit cards because they have seen the crippling effects of consumer debt. However, it's not possible to build credit by only using cash, debit cards, and prepaid cards.

By establishing a variety of credit accounts and paying off these accounts on time every month, you can build a solid credit history.

Myth number 4: Closing old credit cards can help your score

Length of credit history accounts for 15% of your overall credit score.

By closing old credit cards, you may be making two mistakes:

  1. You are reducing your overall credit history.
  2. You are increasing the percentage of your overall credit utilization.

Credit utilization is an important factor for your credit scores. The highest scores typically include credit utilization of just 5.6%. You can calculate your credit card utilization rate by dividing your total credit card balances by your total credit card limits.

Tip: Limit yourself to no more than four open credit cards at once. Keep your oldest credit card open, especially if it doesn't incur annual fees.

Myth number 5: Once an unpaid bill is paid off, it will no longer hurt your score

Negative information will be removed from your credit history after seven years. However, the more time that passes, the less it will affect your score. If you continue adding positive information to your report, your score will start to improve.

Knowledge is power: Start improving your score now

Low credit scores make life more expensive and inconvenient.

By monitoring your score regularly with a tool like Credit Sesame, you have the best chance of spotting issues and crafting a plan to improve them.

Readers: What other popular credit myths need to be debunked?

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Discussions — 16 Responses

  • The Green Swan September 19, 2016 on 8:47 am

    Thanks for the tips Kate, these are important myths to debunk. I think another one that I would add, which I have experienced recently, is opening new cards in an attempt to travel hack does not negatively impact your score. Opening new accounts frequently was a worry of mine before I began travel hacking more regularly, but I haven’t noticed a material impact and think that as long as the cards are being handled appropriately and being paid of timely, they can actually improve your score by demonstrating credit discipline and responsibility.

    • Financial Panther The Green Swan September 19, 2016 on 4:30 pm

      Is that really true? I want to get into the world of travel hacking – at least for when Ms. FP and I go on our honeymoon in the future – but I can’t quite understand the whole process of it and I’ve been constantly worried about messing up my credit from opening too many new accounts.

    • Kate Dore The Green Swan October 4, 2016 on 2:50 pm

      Yes, two factors make up 65% of your credit score — 1) your history of paying debts on time and 2) the amount of debt you currently owe / utilization. If you keep you utilization below 20% on all cards, you should be in good shape.

      Applying for a new line of credit will result in a small ding (typically 5-10 points) because it is a hard inquiry on your credit report, but these should improve with time.

      MagnifyMoney covers more about this in their debt guide:

  • Matt @ Optimize Your Life September 19, 2016 on 10:32 am

    Number 2 frustrates me to no end. People are wasting money for no reason!

    I actually hit number 4 head on before I started teaching myself about personal finance. I had one card that was much older than the rest (I had gotten it in high school). I rarely used it, but had a few recurring payments on there. The company got bought out and the card number stayed the same but for whatever reason my auto-payment information did not transfer over to the new company. I ended up with two months of late fees on missed payments before I even knew what was happening and closed the card out of frustration. To this day age of credit history is still my weakest factor.

    • Kate Dore Matt @ Optimize Your Life October 4, 2016 on 2:52 pm

      Thanks for sharing this example, Matt! Sorry to hear you have a couple of missed payments. I’m sure these blemishes will improve with time.

  • Mr. PIE September 19, 2016 on 2:09 pm

    It is a minefield the credit card history and rating area. And even worse with many myths floating around. This is very helpful to have some of the topics condensed into a very digestible article.

    Like GS above, we were initially concerned about the number of cards we cycled through with travel hacking. But in reality, fears were unfounded. Our credit rating scores have treated water and if anything gone up slightly.

    • Kate Dore Mr. PIE October 4, 2016 on 2:53 pm

      Yes, utilization is pretty important. If you are able to keep utilization below 20% and pay off your balance in full and on time every month, you should be in good shape.

  • Done by Forty September 19, 2016 on 2:28 pm

    It’s funny how many myths permeate credit, despite how important it is to a lot of our lives. Great stuff, as always.

    I especially think the carrying a balance myth is harmful. All people have to do is pay their bill on time. Even when credit is pulled, they’ll see that month’s balance so it’s rarely ever going to show a $0.

    • Kate Dore Done by Forty October 4, 2016 on 2:45 pm

      Great point, Done by Forty!

      Totally agree about the carrying a balance myth — so expensive!

  • Stefanie O'Connell September 19, 2016 on 2:44 pm

    “The carry a balance on your credit card” myth is the one I find most perplexing (and toxic). I don’t know where that started!

    • Kate Dore Stefanie O'Connell October 4, 2016 on 2:39 pm

      Ugh, that’s such an expensive one!

  • Doug September 19, 2016 on 9:48 pm

    That myth probably started by credit card companies lol.
    oil change every 3,000 miles started by Jiffy lube.
    the instructions on the back of the shampoo bottle was started by those companies, during the depression not enough repeat customers so they come up with this wash rinse and repeat to get customers to buy more shampoo.

    • Kate Dore Doug October 4, 2016 on 2:38 pm

      True, Doug! It’s always interesting to see where myths get started.

  • Julie @ Millennial Boss September 21, 2016 on 12:39 am

    Ever since I paid off my student loans and car loan, I have a C in account mix. I hate that about credit scores!

    • Kate Dore Julie @ Millennial Boss October 4, 2016 on 2:37 pm

      Honestly, my account mix isn’t that diverse. I only have credit cards and a mortgage. I choose to focus more on the factors that make up 65% of my score — 1) history of paying debts on time and 2) the amount of debt I owe / utilization.

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    […] Are These Credit Myths Costing You? […]


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