Credit Myths AKA Urban Credit Legends

Closing old credit cards will improve your credit score.

FALSE.  Closing an old credit card can actually hurt your credit score by shortening your credit history and increasing your credit utilization ratio. If it doesn't cost you anything to keep the card and it is older than a year or so it is probably a benefit to keep the card.

Only people with high incomes can have good credit scores.

FALSE.  Your income is not factored into your credit score. Your credit score is determined by your credit history, payment behavior, and other factors. There are many people that earn a lot of money with bad credit and there are a lot of people that don't make much money with great credit. If you always make the payment on time on the money you borrowed you will have great credit eventually.

Using a credit counseling service will hurt your credit score.

Yes and No. Using a credit counseling service alone won't hurt your credit score. However, if you enroll in a debt management plan, it could have a temporary negative impact on your credit score as they will usually do a Hard Credit Check on your account. . If you don't borrow too much money and make your payments on time you will never need a credit counseling service.

Applying for multiple credit cards at once will help your credit score.

FALSE.  Applying for multiple credit cards at once can actually hurt your credit score by generating multiple hard inquiries, which can lower your score. Well in the short term it will hurt your credit score if you get accepted with multiple cards and make your payments on time and borrow very little money from them in a fairly short time. they will help your credit score.

You can not get a Credit Card without a job.

FALSE  You don't need a job to get a credit card, but you do need a source of income to repay your debts. You can use income from sources such as investments, alimony, or child support. Once you have a credit card and make the payments on time you will probably be able to get more credit cards.  This will take a few months.

Your Credit Score only Matters when you Apply for Credit.

FALSE.  Your credit score can impact many aspects of your life, including getting a job, renting an apartment, Signing up for utilities, getting car insurance, getting renters insurance and even getting a cell phone plan.

You should carry a balance on your credit card to improve your credit score.

FALSE. Carrying a balance will not improve your credit score. It could actually hurt your score by increasing your credit utilization ratio. The banks make enough just by you using your credit card that they don't care if you borrow against your card. The merchant pays a fee every time you use your credit card.

Closing a credit card will immediately remove it from your credit report.

FALSE.  Closed credit card accounts can remain on your credit report for up to 7 years. If you missed payments and close that account you will never be able to talk them into removing your missed payments.  Check out Oops I missed a payment Now Whatt for the reason not to close this account.

Paying off a collection account will remove it from your credit report.

FALSE. Paying off a collection account won't remove it from your credit report. It will stay on your report for up to seven years from the date of the first delinquency. However you can make a deal with a collection agency to remove the collection account from your credit report. Check the appendix for how to deal with a Collection Agency.????

Closing credit card accounts will help your credit score:

FALSE.  This is a common misconception. Closing credit card accounts can actually harm your credit score because it decreases your available credit and increases your credit utilization ratio. It's generally better to keep credit card accounts open, even if you don't use them regularly. If your credit history is not very long (less than 6 years) and you delete your oldest credit card it can have a significant negative impact on your credit score.  

Checking your own credit report will lower your credit score:

FALSE.  Checking your own credit report is considered a "soft inquiry" and does not affect your credit score. It's actually a good idea to check your credit report regularly to ensure accuracy and monitor for fraud. I checked mine at least every month and sometimes weekly.

Your income is factored into your credit score:

FALSE. Your credit score is based on payment history, credit utilization, length of credit history, types of credit, and recent credit inquiries. Your income isn't factored into your credit score. Your income will be factored into a loan approval or a rental agreement approval.

You have only one credit score:

FALSE. There are actually multiple credit scoring models used by different lenders and credit bureaus. The most commonly used credit scoring model is the FICO score, but there are also Vantage 300 Score and other scoring models.  The Vantage 300 score is used by Credit Karma???, and many other places where you can get your credit score for free. 

You can remove accurate negative information from your credit report:

This is false. Accurate negative information, such as late payments or collections, will stay on your credit report for a specified period of time usually seven years. However, you can dispute inaccurate information on your credit report. If you have a continuing relationship with the bank that left you the negative you may be able to negotiate a removal of that negative. Check out OOPS I missed a payment.

Co-signing for someone won't affect your credit score:

FALSE.  When you co-sign for someone, you become equally responsible for the debt. The Cosigned loan will show up on your credit history the same as if you took out the loan yourself.  If the borrower misses a payment, it will negatively affect your credit score the same as if you missed the payment. Never co-sign for a loan. ????

Paying off a negative account will immediately remove it from your credit report:

FALSE.  Paying off a negative account will not remove it from your credit report. The negative information will remain on your credit report for seven years. If you keep a relationship with the lender you missed the payment with you may be able to get the missed payment removed.  Check oops I missed a payment.???

Carrying a Balance on your Credit Card will help your Credit Score:

FALSE. Carrying a balance on your credit card can actually harm your credit score because it increases your credit utilization ratio. It's better to pay your credit card balance in full each month.

Your credit score is the only factor lenders consider when deciding whether to approve you for credit: 

FALSE.  Lenders consider multiple factors when making a loan decision, including your credit score, income, debt-to-income ratio, employment history, and more.

You can't get credit if you have bad credit:

FALSE.   While it can be more difficult to get approved for credit with bad credit, there are still options available such as secured credit cards or credit builder loans. It's important to take steps to improve your credit over time. In three or four years of paying your bills on time you will probably be able to get unsecured credit again. Your negatives will drop off after 7 years except for a bankruptcy which may never come off or take 10 years.