Credit Score Myths That Can Hurt Your Finances
Believing the wrong things about credit scores can cost you thousands in interest and years of financial progress. Here's what people get wrong and why it matters.
By CashSmartGuide Editorial Team - Last updated: January 2026 | 8 min read
Credit scores are confusing by design, and that confusion creates space for myths to spread. Some myths are harmless. Others are expensive. Believing that carrying a credit card balance helps your score, for instance, can cost you thousands in unnecessary interest payments over your lifetime.
The worst part is that many of these myths sound plausible. They get repeated so often—by friends, family, even some financial advisors—that people accept them as truth without questioning the logic. Then they make financial decisions based on false information and end up worse off than they started.
This guide debunks the most common and damaging credit score myths with actual facts about how credit scoring works. Some of these will surprise you. Others will make you angry that you believed them for so long. Either way, knowing the truth helps you avoid costly mistakes and build better credit faster.
The Truth About Credit Myths
Most credit score myths fall into three categories: myths about what helps your score (like carrying balances or closing old cards), myths about what hurts it (like checking your own score), and myths about how it works (like having just one universal score). The most damaging myths involve paying interest unnecessarily, avoiding credit entirely, or making decisions that actively harm your score while thinking they help. Understanding how FICO actually calculates scores eliminates confusion and prevents expensive mistakes.
The Most Expensive Credit Score Myths
These myths don't just confuse people—they cost real money. Believing them leads to paying unnecessary interest, getting denied for credit, or missing opportunities to improve your score.
Myth: You Need to Carry a Balance to Build Credit
This is the most expensive myth. It costs people thousands in interest annually.
The Truth:
You never need to pay interest to build credit. Credit card companies report your account activity whether you carry a balance or not. Using your card and paying the full statement balance every month builds credit just as effectively as carrying a balance—without costing you a penny in interest.
Why this myth is expensive:
Someone with a $3,000 average balance at 18% APR pays $540 in interest annually while thinking they're "building credit." Over 10 years, that's $5,400 wasted on interest that provided zero benefit to their credit score.
What to do instead: Charge expenses to your card, pay the full statement balance by the due date every month. You'll build excellent credit and never pay a dollar in interest.
Myth: Closing Old Credit Cards Helps Your Score
People close cards thinking it shows financial discipline. It usually hurts instead.
The Truth:
Closing credit cards reduces your total available credit, which increases your credit utilization percentage. It can also lower your average account age. Both factors hurt your score. Unless the card has an annual fee you can't afford, keep old cards open and use them occasionally.
Real example of damage:
Marcus had three credit cards: one with a $5,000 limit (his oldest card from 10 years ago with zero balance), and two newer cards totaling $10,000 limits with $4,000 in balances. His utilization was 27% ($4,000 ÷ $15,000).
He closed his oldest card because he never used it. His utilization jumped to 40% ($4,000 ÷ $10,000). His average account age dropped from 6 years to 3 years. His score fell 45 points within one billing cycle.
What to do instead: Keep old cards open. Charge something small once every 3-6 months to prevent closure from inactivity, then pay it off. The history helps more than closure helps.
Myth: Paying Off Collections Removes Them From Your Report
This myth causes people to pay collections without negotiating removal first.
The Truth:
Paying a collection account doesn't remove it from your credit report. It just updates the status from "unpaid" to "paid," but the negative mark stays for 7 years from the date of first delinquency. In many scoring models, a paid collection hurts almost as much as an unpaid one.
The costly mistake:
People pay collections immediately thinking it will help their score, then wonder why nothing improves. They've lost their leverage to negotiate because once you've paid, the collection agency has no incentive to help you.
What to do instead: Before paying any collection, negotiate a "pay-for-delete" agreement in writing. Offer to pay the full amount in exchange for them removing the account from your credit report entirely. Not all agencies agree, but many will. Never pay without getting deletion in writing first.
Myth: Avoiding Credit Entirely Gives You Good Credit
Some people think living cash-only means perfect credit. It means no credit.
The Truth:
You can't have a good credit score without using credit. If you've never had credit cards, loans, or any accounts reported to credit bureaus, you don't have a credit score at all. You have no credit history, which is different from good credit. Lenders treat "no credit" similar to "bad credit" for approval purposes.
Why this hurts you:
When you finally need credit—buying a house, renting an apartment, financing a car—you'll be denied or face terrible terms because you have no history. Living cash-only doesn't demonstrate you can manage credit responsibly. It demonstrates you've avoided the system entirely.
What to do instead: Use credit strategically. Get a credit card, use it for regular expenses, pay it off monthly. This builds excellent credit without debt or interest charges. You're proving you can handle credit while never carrying balances.
Myths About What Hurts Your Score (But Actually Doesn't)
These myths make people avoid helpful actions because they wrongly believe those actions will damage their credit.
Myth: Checking Your Own Credit Hurts Your Score
The truth: Checking your own credit report or score is a "soft inquiry" that has zero impact on your score. Only applications for new credit create "hard inquiries" that slightly lower your score temporarily. You can check your credit daily without any negative effect.
In fact, you should check your credit regularly to monitor for errors and identity theft. Annual Credit Report.com gives you free reports from all three bureaus yearly, and many credit cards now offer free score monitoring.
Myth: Making More Money Improves Your Credit Score
The truth: Your income is not reported to credit bureaus and is not part of credit score calculations. Someone making $40,000 can have an 800 credit score while someone making $200,000 has a 580 score. Credit scores measure how you manage debt, not how much you earn.
Income matters when lenders evaluate your ability to repay (debt-to-income ratio), but it doesn't directly affect your credit score calculation.
Myth: Getting Married Merges Your Credit Scores
The truth: Credit scores remain completely separate after marriage. You don't inherit your spouse's credit history or score. Joint accounts you open together will appear on both credit reports, but your individual histories and scores stay independent.
If your spouse has bad credit, it doesn't hurt your score unless you cosign on their debts or open joint accounts that they mismanage.
Myth: Using a Debit Card Builds Credit
The truth: Debit cards are not credit, so using them doesn't build credit history. Banks don't report debit card usage to credit bureaus because you're spending your own money, not borrowing. Only credit products (credit cards, loans, mortgages) affect your credit score.
This is why people who only use debit cards often have no credit score—they haven't established any credit history.
Myth: Paying Rent and Utilities Builds Credit
The truth: Most rent and utility payments are not reported to credit bureaus, so they don't help build your score. Only if you specifically use a service that reports these payments (like RentTrack or Experian Boost) will they affect your credit.
However, if rent or utilities go to collections for non-payment, those collections do get reported and hurt your score. You get punished for missing payments but don't get rewarded for on-time payments unless you use special reporting services.
Myths About How Credit Scoring Works
These myths reflect misunderstandings about the basic mechanics of how credit scores are calculated and used.
Myth: You Only Have One Credit Score
The truth: You have multiple credit scores—at least three (one from each bureau: Equifax, Experian, TransUnion) using various scoring models (FICO, VantageScore). Your Experian FICO score might be 720, your TransUnion VantageScore 710, and your Equifax FICO 715.
Different lenders pull different scores from different bureaus. When you apply for a mortgage, they often pull all three and use the middle score. This is why the "credit score" your credit card shows you might differ from what a lender sees—they're looking at different versions.
Myth: Employers Can See Your Credit Score
The truth: Employers can request your credit report for employment purposes, but they cannot see your credit score. They see your payment history, accounts, and any negative marks, but the three-digit number is not included in employment credit checks.
Additionally, you must give written permission before an employer can pull your credit report, and not all jobs require credit checks—mainly positions in finance, government, or requiring security clearance.
Myth: All Late Payments Affect Your Score the Same
The truth: The impact of a late payment depends on how late it is and your overall credit profile. Payments under 30 days late aren't reported to bureaus at all. At 30 days late, it gets reported and hurts your score. At 60, 90, and 120+ days, the damage increases.
Someone with excellent credit (780 score) might drop 90-110 points from a single 30-day late payment. Someone with fair credit (650 score) might only drop 60-80 points because they already had issues. Recent late payments hurt more than old ones—a late payment from last month damages your score more than one from 5 years ago.
Myth: Paying Off Debt Immediately Fixes Your Score
The truth: Paying off debt improves your credit utilization, which helps your score quickly—sometimes within one billing cycle. However, negative marks like late payments, collections, or charge-offs stay on your report for 7 years regardless of whether you paid the debt.
Your score will improve gradually as negative marks age and become less impactful, but they don't disappear just because you paid. This is why pay-for-delete negotiations on collections are valuable—they actually remove the mark rather than just updating the status to "paid."
Myth: Closing a Card Immediately After Paying It Off Helps
The truth: This actually hurts your score twice. First, it reduces your available credit (increasing utilization on remaining cards). Second, it removes a paid-off account that was showing positive payment history.
People do this thinking they're preventing future debt, but it's counterproductive for credit building. Keep the card open, don't use it (or use it minimally), and enjoy the benefit of lower utilization and longer credit history.
Myths About Shopping for Loans and Credit
Rate shopping creates anxiety because people believe common myths about how multiple inquiries affect their score.
Myth: Every Credit Inquiry Hurts Your Score Equally
The truth: FICO recognizes rate shopping and groups similar inquiries together. If you're shopping for a mortgage, auto loan, or student loan, multiple inquiries within 14-45 days (depending on the FICO version) count as a single inquiry.
This means you can shop around for the best mortgage rate without worrying that each lender's credit pull will tank your score. However, this only applies to the same type of loan—shopping for a mortgage, car, and credit card simultaneously creates three separate hard inquiries.
Myth: You Should Never Apply for New Credit
The truth: Hard inquiries from credit applications do lower your score by 2-5 points each, but the impact is temporary (12 months) and minimal compared to other factors. If you need credit, apply for it—the benefit of better rates from competition outweighs a tiny temporary score dip.
The real damage comes from applying for multiple credit cards in a short period with no clear purpose, which signals financial stress. Strategic applications for needed credit are fine.
Myth: Pre-Qualification and Pre-Approval Hurt Your Score
The truth: Pre-qualification typically uses a soft inquiry that doesn't affect your score. Pre-approval sometimes uses a hard inquiry (especially for mortgages), but it's worth it to know you can actually qualify before house hunting.
Always ask whether an inquiry will be hard or soft before authorizing it. Most credit cards offer pre-qualification with soft pulls, letting you see if you're likely to be approved without impacting your score.
Myths About Age, Time, and Credit Building
People often have unrealistic expectations about how quickly credit can be built or repaired, leading to frustration or bad decisions.
Myth: Building Good Credit Takes Many Years
The truth: While building an excellent score takes time, you can establish a good score (670+) much faster than most people think. With responsible credit card use, you can build a good score within 6-12 months of opening your first account.
The key factors are consistent on-time payments and low utilization, both of which you can demonstrate quickly. You don't need decades of history to get approved for credit or reasonable rates. For detailed timelines, see: How Long Does It Take to Build a Good Credit Score?
Myth: Bad Credit Follows You for Life
The truth: Most negative items fall off your credit report after 7 years (bankruptcies after 7-10 years). Even while they're on your report, their impact decreases over time. A 2-year-old late payment hurts less than a recent one.
With consistent positive behavior, you can rebuild from terrible credit to good credit in 2-3 years, and to excellent credit in 4-5 years, even with negative marks still on your report. The key is adding positive information that outweighs the negative over time.
Myth: You Need to Be 18 to Start Building Credit
The truth: While you must be 18 to legally sign credit agreements, minors can build credit history earlier by being added as authorized users on their parents' credit cards. This adds that account's history to their credit report.
Parents with excellent credit can give their children a significant head start by adding them as authorized users at 15-16 years old. By the time they turn 18 and apply for their own credit, they already have years of positive history.
Myth: Older People Have Better Credit Scores
The truth: While credit scores generally improve with age (due to longer credit history), your personal age isn't a scoring factor. A financially responsible 25-year-old can have better credit than a 60-year-old with poor payment history.
The length of your credit history matters, but it's just 15% of your score. Payment history (35%) and utilization (30%) matter far more. Someone new to credit can outperform someone with decades of poor credit management.
Myths About Quick Fixes and Credit Repair
These myths are often perpetuated by scam companies promising unrealistic results.
Myth: Credit Repair Companies Can Remove Accurate Negative Items
The truth: Credit repair companies can only dispute inaccurate information—something you can do yourself for free. Legitimate negative marks (accurate late payments, charge-offs, etc.) can't be removed just because you paid someone to dispute them.
These companies prey on desperation by promising to "clean up" your credit. They typically charge $50-150 monthly to send template dispute letters that bureaus recognize and reject. Save your money and dispute actual errors yourself.
Myth: You Can Create a New Credit Identity
The truth: Some scams promise to create a "new credit identity" using an EIN or CPN (Credit Privacy Number) instead of your Social Security Number. This is illegal identity fraud that can result in fines and imprisonment.
There's no legal way to start over with a clean credit history. You must work with what you have, dispute errors, build positive history, and wait for negative marks to age off naturally.
Myth: Bankruptcy Destroys Your Credit Forever
The truth: Bankruptcy is severe and stays on your report for 7-10 years, but it doesn't prevent credit rebuilding. Many people have 700+ scores within 2-3 years of bankruptcy by establishing new positive credit accounts and maintaining perfect payment history.
Bankruptcy actually allows faster rebuilding than drowning in unpaid debt for years. It's not ideal, but it's not a permanent financial death sentence either.
Myth: Paying Everything in Cash Protects Your Credit
The truth: Using only cash means you're not building credit at all. When you eventually need to apply for a mortgage, car loan, or even rent an apartment, you'll have no credit history. Lenders can't evaluate risk on someone who's never used credit.
Strategic credit use—charging expenses to a card and paying in full monthly—builds excellent credit without debt or interest. You're creating proof of creditworthiness while maintaining your cash-based lifestyle.
Why Credit Score Myths Are So Persistent
Understanding why myths spread helps you recognize them when you encounter new ones.
Credit Scoring Is Deliberately Opaque
FICO doesn't publish the exact algorithm for calculating scores, creating mystery and speculation. This information vacuum gets filled with myths and guesses that sound plausible enough to spread.
Financial Education Is Poor
Most people never learn how credit works in school or at home. They form beliefs based on what friends say, what they read online, or what credit card representatives tell them (who may have incentives to keep people in debt).
Myths Often Benefit Financial Companies
The myth that you need to carry a balance to build credit generates billions in interest revenue annually. Companies have little incentive to correct myths that profit them.
Anecdotes Sound Like Evidence
Someone closes a credit card and their score happens to drop the same month for unrelated reasons. They connect the two events and spread the myth that "closing cards always hurts your score" when correlation isn't causation.
Some Myths Were Once True
Scoring models evolve. Practices that affected scores negatively in 1990 might not matter in 2026. People repeat outdated information they learned decades ago without realizing it's no longer accurate.
The Real Rules of Credit Scores
Forget the myths. Here's what actually matters for building and maintaining excellent credit.
✓ Pay Everything On Time
35% of your score. Never be 30+ days late. Set up autopay for at least minimums on everything.
✓ Keep Utilization Under 30%
30% of your score. Under 10% is even better. Pay down balances or request credit increases to lower this ratio.
✓ Keep Old Accounts Open
15% of your score. Length of history matters. Don't close old cards unless they have unaffordable annual fees.
✓ Limit New Applications
10% of your score. Only apply for credit you actually need. Space applications several months apart when possible.
✓ Have a Mix of Credit Types
10% of your score. Cards plus installment loans help slightly, but never borrow just for credit mix.
✓ Dispute Actual Errors
About 20% of reports contain errors. Check annually and dispute anything inaccurate.
For the complete scoring breakdown, read: How Credit Scores Work in the USA. For action steps to improve quickly, see: How to Improve Your Credit Score Faster
The Bottom Line
Credit score myths are expensive. Believing you need to carry balances costs thousands in interest. Closing old cards thinking it helps can drop your score 30-50 points. Avoiding credit entirely leaves you with no score when you finally need it. These myths persist because credit scoring is deliberately opaque and financial education is poor.
The most damaging myths involve paying interest unnecessarily, making account decisions that hurt utilization or credit history length, and trusting credit repair scams instead of taking legitimate action. Understanding the actual scoring factors—payment history, utilization, length of history, new credit, and credit mix—eliminates confusion and prevents costly mistakes.
Good credit comes from simple, consistent behavior: paying everything on time, keeping balances low, maintaining old accounts, and limiting new applications. You never need to pay interest, close accounts, or hire credit repair companies. These actions either don't help or actively hurt your score while costing you money.
When you hear credit advice that sounds questionable, verify it against the actual FICO scoring factors before following it. Most myths fall apart quickly when you understand how credit scores actually work. Stick to the proven basics, ignore the myths, and your credit score will improve naturally without gimmicks or unnecessary costs.
Learn More About Credit
Credit Information Disclaimer
This article provides general information debunking common credit score myths and explaining how credit scoring actually works. Credit scoring models, bureau practices, and lender policies evolve over time. While we strive to provide accurate information based on current FICO and VantageScore methodologies, individual circumstances vary. This content should not be considered personalized financial or credit advice. For specific guidance about your credit situation, consult with qualified financial advisors, certified credit counselors, or consumer protection professionals. Always verify credit-related claims against authoritative sources rather than relying solely on common wisdom or anecdotal evidence.