Common Credit Score Myths That Still Trip People Up

This is one of the most costly credit myths in circulation. Your score rewards you for using credit responsibly, not for paying interest. What matters is that your utilization ratio — the percentage of your available credit currently in use — stays low, ideally below 30%. A balance that reports at zero or near zero satisfies that condition just as well as a small carried balance, while avoiding interest entirely. Credit utilization is one of the most influential factors in your score, and carrying a balance unnecessarily can actually push that ratio higher. For a deeper look at this specific misconception, see common credit card balance myths debunked.

Credit inquiries fall into two categories: hard and soft. A hard inquiry occurs when a lender reviews your credit as part of an application decision — those can temporarily reduce your score by a few points. A soft inquiry includes things like background checks, pre-qualification reviews, and you checking your own report. Soft inquiries are never visible to lenders making decisions about you and have no scoring impact whatsoever. Regularly reviewing your own credit report is actually a recommended practice — it's the most reliable way to catch errors or signs of identity theft early.

When you close a credit card, you lose that account's credit limit from your total available credit. If you're carrying balances on other cards, your utilization ratio — balances divided by total available credit — rises immediately. Additionally, if the closed account was one of your older accounts, closing it can reduce your average account age over time, which is another scoring factor. A general principle: if a card carries no annual fee, keeping it open and occasionally using it for a small purchase is usually better for your score than closing it. Secured cards follow the same logic — closing them prematurely can undo credit-building progress.

Credit scores are calculated entirely from information in your credit report: payment history, amounts owed, length of credit history, new credit inquiries, and credit mix. Income, employment status, and net worth are absent from that calculation. Lenders may consider your income separately when evaluating a loan application — it informs their judgment about your ability to repay — but that assessment is distinct from your credit score. This also means a high income does not compensate for a poor payment record, and a modest income does not prevent you from maintaining an excellent score.

FICO and VantageScore both recognize that consumers shopping for the best mortgage, auto loan, or student loan rate are acting prudently, not recklessly accumulating debt. When multiple hard inquiries of the same type occur within a defined period — typically 14 to 45 days depending on the scoring version — they are generally counted as one inquiry for scoring purposes. The practical implication: don't let fear of inquiry penalties stop you from comparing loan terms. Doing so within a focused timeframe is both financially smart and scoring-safe. This same caution about misinformation applies across financial products; auto insurance carries its own set of persistent myths worth understanding.