Forty percent of us think our credit score will climb if we carry a small balance (nope), and 52% don’t realize bad credit can increase the amount needed for deposits on utilities (it does!), according to a NerdWallet survey.
“There are quite a few myths and misinformation about credit scores,” says Ryan Greeley, author of the “Better Credit Blog.” “This stuff isn’t taught anywhere, so it’s something you have to dig into yourself.” The worst time to find out you’ve got a going-nowhere credit score is when you’re trying to buy a home.
Unless you have us to dig for you, that is. Here are seven top credit score myths, and the reality behind them.
Myth #1: Always carry a small balance on your credit card.
Reality: The credit score gods want to know two main things: that you pay your bills on time, and that you don’t constantly max out the credit you have.
And yes, one of the items they like to see you pay is your credit card bill — all of it. The only thing a running balance increases is the interest you owe. That’s why Erin Lowry, who writes the “Broke Millennial” blog, believes banks and credit card companies probably perpetuated this myth to boost their profits.
Myth #2: It’s OK to pay credit cards a day late if you pay them off in full.
Reality: “Missing a payment is the biggest way to hit your credit score,” Lowry says. “If you pay a student loan a day late, your score can go down as much as 100 points.” So much for that degree making you smarter.
To maximize your score, always pay your installment loans (like car loans and mortgages) on time and in full. You know, like you’re supposed to. But also note that actual humans work for financial companies; if you need to pay late for a legit reason, call your lender — before the due date — and have a frank conversation. They’ll often help out.
If you pay a student loan a day late, your score can go down as much as 100 points.
Erin Lowry, “Broke Millennial” blog
Myth #3: Closing old cards will erase any negative history.
Reality: If it was that easy, we’d all be driving Teslas. Credit-reporting companies keep information on your file for seven years, no matter what.
And actually, the longer you’ve responsibly used a particular credit card, the better effect it has on your credit score. Remember, you’re judged by how much of your credit you’re using. Closing a credit card makes that percentage change for the worse.
Myth #4: If you’ve never had credit, you have a perfect credit score.
Reality: There’s no reason to save your credit virginity for that special something. If you’ve never used credit, it’s anyone’s guess how well you’ll handle it once you do. Credit reporting agencies call it a “thin file,” meaning there’s not enough information on you to create a credit score. So if you’re a newbie, get an itty-bitty card or loan, and starting fattening up that file.
Myth #5: Checking your credit score frequently will hurt your score.
Reality: How else are you supposed to keep track of the darn thing? It’s true that several “hard” checks by companies can ding your score a few points. Hard checks generally happen when you are actually seeking a loan or line of credit, such as a mortgage or credit card.
If you check your own, it’s called a “soft” check, and it doesn’t hurt your score.
So for Pete’s sake, check your score and credit report at least annually. It’s super easy these days, especially with websites like creditkarma.com, or use a banking app that lets you easily monitor your score. A sudden, unexplained dip could be a sign that identity theft or mistakes are hurting your credit (and keep hard checks to one or two a year).
Myth #6: Paying off a student loan or car loan early will hurt your credit.
Reality: Ah, no. Credit report companies definitely do not punish you for paying off loans early. They might even throw you a parade. (Not really. Put away your princess wave.) While responsibly paying installment loans may be good, paying off those loans is way better.
Myth #7: Your age, sex, and other non-money issues affect your credit score.
Reality: What century is it again? Federal law protects you from credit discrimination based on non-credit issues, like race, color, national origin, or sex. Sure, credit card companies or lenders can ask, but they can’t deny you credit based on your answers. Income, expenses, debts, and credit history are what matters.
Myth #8: My credit score can hurt/help my chances of landing a job.
Reality: Actually, this one is partially true, depending on how fancy your job is. If it requires a security clearance or using a company credit card, an employer will want to know how you use credit, or if you’re in a financial mess that may make you bribe-able, Lowry says. But don’t worry, the employer will ask your permission before pulling your credit report, which is considered a soft pull and won’t hurt your score.
Related: 5 Newbie Mortgage Mistakes That Are Soooo Easy to Avoid