Common Credit Score Myths

September 2015 – Common Credit Score Myths

Credit Score Myth #1: Credit scores are the only factor in determining if you can get credit. (Courtesy of

Your credit score is a very important aspect of a lending decision, but it’s not the only one.

A recent high school graduate may have a less-than-great credit score because he just started using credit cards, but if he has a parent co-sign and can show adequate income and employment, lenders would likely still consider him a viable candidate for a car loan. Lenders gather different types of personal information and make decisions based on their interpretation of these facts and their specific underwriting policies. Your credit score is certainly part of this decision, but other factors such as employment, household income, co-signers and the level of risk a lender is willing to assume all play into lending decisions.
Credit Score Myth #2: You should close a credit card when you pay it off so the history is erased.

The fact is any missed payment stays on your report for seven years, whether or not the card is currently in use1. Always try to make payments on time even if you can only send the minimum balance. If you miss a payment by a few days, call your card’s customer service and see if they’ll give you a pass for this one-time error so it doesn’t hurt your score.

If you’ve recently paid off a card, congratulations! But put away the scissors. Keeping a card open establishes a longer credit history and improves your credit utilization rate. This is your total amount of debt divided by your total credit limits. When you close a card your available credit decreases and your credit utilization rate increases. An ideal rate is 30% or under, so keep that in mind before deciding to close an account2.
Credit Score Myth #3: Your age, sex or marital status affects your credit score.

Thanks to the Equal Credit Opportunity Act signed into law by President Ford in 1976, creditors are not able to base any lending decisions on a borrower’s race, color, religion, national origin, sex, marital status or age3. None of this information is used to determine your credit score.

While your marital status doesn’t affect your score, your personal credit history does. If a 45-year old stay-at-home mom only uses credit cards in her partner’s name, then tries to apply for a loan independently, she would likely have the same score range as a 20-year old without any credit history.
Credit Score Myth #4: You can be penalized for checking your credit score.

To debunk this myth you need to understand the difference between a “soft inquiry” and a “hard inquiry”.

A soft inquiry is when you check your own score or report. There are no penalties for inquiring about your own status. Everyone is legally entitled to free credit reports from the three major bureaus once a year through You can certainly check your reports more often but the bureaus may charge a fee to provide more than annual reporting.

Hard inquiries are when an outside party checks your credit score on your behalf, typically when you apply for a new line of credit. This can have an effect on your credit score, as too many inquiries in a short period of time can indicate to reporting bureaus that you are having a hard time being approved for credit.
Credit Score Myth #5: I pay my bills on time so I don’t need to check my credit report.

It’s true that paying your bills on time is a major factor in a quality credit score. But that doesn’t mean you should set your credit cards to autopay and never think about your credit report again. A study by the Federal Trade Commission found that one in five American consumers had an error on at least one of their credit reports4. The FTC press release states:

“These are eye-opening numbers for American consumers. The results of this first-of-its-kind study make it clear that consumers should check their credit reports regularly. If they don’t, they are potentially putting their pocketbooks at risk.” -Howard Shelanski, Director of the FTC’s Bureau of Economics

These errors can have a negative effect on your credit score and lead to paying more for car loans and insurance rates. Set yourself a reminder to perform a credit report check at least once a year. If you do find an error, you can work with the credit reporting company to set the record straight.

We hope this article has helped clear up some common myths about credit scores. The better informed you are about lending practices the more intelligent decisions you can make about your finances.