12 Credit Myths and Truths You Should Know

Building and maintaining great credit is an important part of your financial life. But there are loads of myths and misunderstandings about credit that can hurt your wallet. Laura covers 12 credit myths and truths you should know to save money and improve your finances.

Laura Adams, MBA
7-minute read
Episode #534

While using a debit card is convenient for making everyday purchases, they don’t help you build credit because your bank activity isn’t listed on your credit report.

Myth #4: Canceling credit cards boosts your credit.

Truth: Closing a credit card that you’ve had for several years or that has a high credit limit can hurt your credit, not help it. A major factor in your scores is how much you owe relative to your credit limits, known as your credit utilization ratio. So, reducing your available credit always works against you.

If you’re not using a card, a better option is to keep your account active by using it to make a small purchase a few times a year. The length of your credit history is also a factor; so, if you’re determined to get rid of cards, close the newest ones first and do it slowly over time.

Myth #5: You share credit with a spouse.

Truth: Your credit history and scores never get merged with someone else’s—even if you’re married. That’s why it’s important to build your own credit as an individual.

If you have a spouse with bad credit, that could affect your ability to get a joint loan or credit card, but it can’t taint your credit file. However, if you become an authorized user on someone else’s credit card, the payment history on that account may get reported on your credit file.

See also: 5 Lesser-Known Reasons Why Your Credit Scores Drop

Myth #6: Kids can’t have a credit report.

Truth: Kids shouldn’t have a credit report, but if they’ve become the victim of identity theft, or have been added to a credit card as an authorized user, they will. Parents should check by contacting each of the credit bureaus at least once a year and disputing any fraudulent activity. 

Children are an easy target for cybercrime, so be sure to never give your children’s Social Security numbers to any organization or person unless it’s required. If you must reveal it, ask if you can share just the last 4 digits.

Myth #7: You must carry credit card debt to build credit.

Truth: You never need to carry credit card debt to improve your credit. It’s true that you must have credit accounts and use them to build credit; however, you can pay them off in full each month. That’s the best strategy to avoid paying interest and build credit at the same time. 

If you do need to carry a balance from month to month, you can also build a positive credit history if you pay at least the minimum payment on time. So, go ahead and use a credit card or two—just make sure you pay it off every month.

See also: How Many Credit Cards Should You Have for Good Credit?

Myth #8: You only need good credit if you plan to carry debt.

Truth: Your credit affects your finances even if you never borrow money. It’s used as a tool to evaluate you and set rates for several different industries and products.

Depending on where you live, having poor credit means you could pay more than double what someone with excellent credit pays for insurance.

For instance, having black marks on your credit history could cause you to be turned down for a job. With your permission, a prospective or current employer can pull your credit report.

Having bad credit can keep you from getting approved to rent an apartment or home. It also means you may have to pay higher security deposits for power, cable, internet, and mobile phone accounts.

Additionally, your credit is a big factor in the rates you’re quoted for auto insurance and home insurance in most states. Depending on where you live, having poor credit means you could pay more than double what someone with excellent credit pays for the same insurance policy.

See also: The Truth About Credit and Insurance Rates


About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.