15 Credit Myths and Facts Everyone Needs to Know

Credit scores and credit bureaus can be confusing if you are new to the world of credit – or even if you aren’t. How do you differentiate credit facts from credit myths?

It is crucial to understand how credit work so you can build and maintain a healthy score. It may feel challenging to do when lots of outdated (and incorrect) credit advice lingers. A recent study found that one in four Americans can’t tell the difference between a credit score and a credit report.

We brought together the most crucial credit facts you need to know about credit score and its impact to expose the credit facts from the credit myths. How much do you know about score facts vs. fiction? Take our true or false quiz below to test your credit IQ:

1. Must you carry a balance to build credit?

We have no idea how one of the most persistent credit card rumors began, but it’s not correct. If you carry a balance on your credit card from month to month, you won’t necessarily raise your credit score quickly. You’ll end up paying more in interest.

The most fundamental way to improve your credit score is to make a few small purchases each month and then immediately pay off the balance in full. This credit secret strategy allows the card to remain active and shows creditors they can trust you to use credit responsibly.

2.  If I pay off my balance in full every month, then I’ll have an excellent score?

Using more than 25% of your credit limit at any point during the month negatively impacts your credit scores, even if you pay off your credit cards in full every month.

Why? Because credit utilization rate makes up 30% of your credit score and a high debt to credit utilization negatively impacts your credit scores. Your credit utilization represents your balance compared to the total amount available to you.

Remember credit utilization ratio is only calculated using your primary revolving accounts, such as credit cards or personal lines of credit that do not have a fixed number of payments. So installment loans, such as vehicle loans or student loans, are not part of this equation.

A paid-off credit card account in full every month does not necessarily mean a high credit score. These are myths about credit so keep your card usage low!

3.  If I pay off a debt, it will remove any late or missed payments on that account?

That’s not always the case. Late payments could stay on your report for up to seven years from the date you missed the payment, and they typically remain on your report even after the debt is paid off.

How credit works do not have to be daunting. An excellent first step is educating yourself on the terminology to start to understand what phrases are used in the industry.

4. Is your credit score is based on more than five factors?

Five core factors determine your credit score – Payment History, Credit Utilization Ratio, Length of Credit History, Hard Inquiries, and Credit Mix.

However, they’re not the only data points used the determine your credit score. According to FICO, their algorithms use about 100 data points to come up with your score. For example, is your card a credit builder card such as a Self Lender, store card, or a AAA reputable credit card like Chase?

Remember that the traditional credit factors chart does not account for negative items on your report, which is a significant factor in a person’s report. So, although two people might have similar core credit factors, their scores might be entirely different.

5. Can credit not to be challenging to get if you don’t already have it?

You don’t need to go into debt to build a good credit score.

Having a credit card and making payments can build your credit, but other ways are too. For instance, see if your utility company reports payments. Or, you can sign up for a rent reporting service.

Also, using an authorized user tradeline to supercharge your efforts could boost your score in months instead of years. Learn how they work and if this strategy is a good fit for you.

Accelerate your effots with an authorized user tradeline.

6. Will paying off a collections account and other debt automatically remove it from your credit report?

Unfortunately, paying off a collection or derogatory account doesn’t remove it from your credit report.

Typically, these activities can stay on your report for up to seven years. The good news is that the impact of a negative item does lessen over time, especially if you’ve logged positive credit activities since then.

7.  Do you have a universal or one credit score?

There are many types of credit scores, and each may be determined differently.

For example, FICO has a score for auto, mortgage, and general scores. In addition, your creditors and mortgage lenders may not report data to all three nationwide credit bureaus – Equifax®, Experian®, and TransUnion®.

Sometimes, they go to all three bureaus. Other times, they’re sent to only one, two, or none at all. That’s another reason why your credit scores could vary among the three major credit bureaus.

8. If I check my score, will it not hurt my score?

Many people believe that checking your score hurts your credit, but nothing could be further from the truth. Requesting your credit report or checking your score is called “soft” inquiries and doesn’t affect your credit score.

Hard inquiries are different! Unlike soft inquiries, hard hits or inquiries are when lenders look at your credit, negatively impacting your score. However, the consequences are minor and temporary, especially if the queries are made close together in time.

9. Do all three bureau reports have the same information?

Equifax, Experian, and TransUnion, the three main credit bureaus, receive and report different information.

Lenders and creditors aren’t obligated to report to all of them or any of them at all. For example, your utility company might only report to two of the credit bureaus.

That’s why your credit report and scores can differ across the bureaus. It’s best to keep your reports error-free and your credit card payments on time to ensure that no matter which credit report is pulled, you’ll have your best financial foot forward.

10.  Does an excellent credit score not guarantee your credit application approval?

A good credit score is not a lottery ticket because lenders may use information in your credit reports and other information on your application to determine whether on not you’ll be approved for credit.

Some things they consider include your income, steady job, or available collateral. While excellent scores are a good starting point, it doesn’t mean it’s the sole data point for a lender’s credit decision.

Are you looking to raise your score? Tradelines may be a viable option.

11.  Is there no one-size-fits-all solution for credit behavior and reports?

Your credit and financial situation are unique from everyone’s, and so is how each creditor or lender processes.

The most steps or action to take is to increase your credit education and take responsible credit management. The more accurate information about how credit works and the more familiar you become with your situation, the more informed you’ll be.

12.  Are parking tickets and library fines not included in your credit reports?

Even if the accounts are sent to a collection agency, parking tickets and library fines do not appear on your report.

13. Should you always close credit cards you’re not using?

If you’re focused on paying off debt, it’s an accomplishment once you’ve reached your $0 balance goal, and you might think the next step is to close your account. Please don’t do it! Especially if it’s your oldest account.

Doing so could harm your credit by reducing the total credit available, lowering your average credit age and oldest account age. Once a card is paid off, the best thing to do is leave your old credit accounts open and use it to make a small purchase every few months that you pay off right away to keep the card active.

Interested in increasing your available credit? Tradelines can help!

14. Do the majority of lenders use Vantage scores when making decisions?

In 1956, Bill Fair and Earl Isaac founded the FICO credit scoring system to help lenders make better lending decisions. FICO analyzes credit scores from the three major credit bureaus: TransUnion, Equifax, and Experian; they’re also known as “The Big Three.”

The Big Three bureaus later created a FICO competitor, VantageScore, to offer a more consistent score across the three bureaus; however, it has not been widely adopted. Currently, 90% of lenders use your FICO score when making lending decisions.

Have you heard someone say, “Credit Karma is not very accurate!” They typically mean that the scores are sometimes several points off from the FICO score. So, it’s not a lack of accuracy, but it’s an entirely different algorithm.

Get your free Credit Karma account here so you can start getting informed of your credit habits. It’s always a great idea to get paid monitoring software like myFICO and Experian and free software as they have added benefits like a weekly credit report and score others have insurance for a victim of fraud and identity theft.

15. Do FICO credit scores range from 300 to 850?

Credit score ranges vary depending on the credit scoring model, and the range for business credit is different from personal credit report scores.

Knowing your credit score and credit report can help you understand how you can improve them. For example, if you’re looking to move from “fair” to “good,” it’s vital to not only know where those scores lie but also what’s pulling your score down.

Here’re the credit ranges used by FICO.

  • 800–850: Exceptional
  • 740–799: Very Good
  • 670–739: Good
  • 580–669: Fair
  • 300–579: Poor

Where do you stand? Get a personalized credit tradeline analysis to see where you stand and learn how to boost your score today.

How would you feel if you could accomplish your target score goals in as little as 30 days instead of in several years?

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