Your credit score determines a lot. It controls your loan approvals and terms. Credit scores help insurance companies determine your premiums (or even if they’ll approve you). It may even control if you get a new job.

Understanding the top credit score myths can help you maximize your credit score. Let’s debunk those myths.

Myth: You hurt your credit score if you check it.

Truth: You should check your credit score and it DOESN’T hurt it. When you check your credit score it’s a soft inquiry. Only hard inquiries hurt your credit score and those only occur when you actively apply for credit. Checking your score doesn’t mean you’re applying for credit, so it doesn’t affect it.

Myth: You should close old credit cards to help your credit score.

Truth: Closing old credit cards hurts your credit score. It lowers your total credit line, which increases your credit utilization (the amount of debt outstanding compared to your credit lines). Instead, keep them open, but don’t use them.

Myth: You can’t fix bad credit.

Truth: Your credit score is a snapshot of your credit today. If you fix late payments, lower your debt totals, or make other positive credit changes, it may increase your credit score. Every time a creditor reports your credit history it changes your credit score. You can’t fix bad credit overnight, but with good habits, it will eventually change.

Myth: Carrying a balance is good for your credit score.

Truth: It depends. Typically, high balances hurt your credit score. Any balance that exceeds 30% of your credit line brings your credit score down. If you have a low balance and pay the bill on time, it may help, but only slightly. You’re better off paying your debts off in full.

Myth: It takes a long time to ruin your credit score.

Truth: One bad account can drop your credit score as much as 100 points. Let a bill go to collections and watch your credit score drop fast. Don’t pay your bills or have a high credit card balance? Your score will drop again. Your credit score can drop in the blink of an eye.

Myth: Only rich people have good credit scores.

Truth: Your income doesn’t affect your credit score directly. If it helps you pay your bills on time, then yes it helps. But anyone can pay their bills on time if they only take on what they can afford. Your income doesn’t affect your credit score in the least.

Bottom Line

Your credit score is one of the most important factors in your personal finance life. Check it often (your credit card companies or bank usually offers free access) and once a year to check your free credit reports.

If you make mistakes, fix them. Your credit score changes often, so you can always work toward good credit. Don’t beat yourself up for one credit mistake. Pick up the pieces and improve your credit score – working on good habits continually is your best chance for good credit.

Rahul Iyer