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

Myth #9: Every bill you pay helps build credit.

Truth: Not all bills you pay affect your credit scores. For instance, payments to small companies, individuals, and local services—such as for rent, pest control, or a storage unit—typically don’t show up on your credit report.

The credit bureaus have strict requirements about who can report consumer information to them, and in many cases, it’s just not feasible for small businesses. If a merchant doesn’t report payment information to the credit bureaus, then your payment history with that company can’t affect your credit scores.

However, if you don’t pay up and they turn your account over to a collection agency, that’s another story! Collection companies typically report information to the credit bureaus on accounts they acquire.

Myth #10: Checking your credit hurts your score.

Truth: Pulling your own credit report is called a “soft inquiry” and it never hurts your credit scores, no matter how often you request it. “Hard inquiries” are made by lenders or credit card companies when you apply for a new account and they do reduce your scores slightly in the short term.

So, don’t be shy about getting your credit reports. Check out sites like Credit Karma and Credit Sesame that give you unlimited access to one or more of your credit reports and scores for free. Checking your reports regularly is the best way to catch fraudulent activity and stop an identity thief in his tracks.

Free Resource: Learn how to build credit, check your credit reports, and get errors corrected in the free Credit Score Survival Kit, a free multimedia tutorial.   

Myth #11: You have one credit score.

Each scoring model uses a different scale of numbers or letters, which is why your score isn’t as important as whether your rating is trending up, flat, or down.

Truth: While some credit scores are more popular than others, such as FICO and VantageScore, there are hundreds of credit scoring models in use. Plus, companies can use their own algorithms based on what they sell. For instance, insurers typically use a credit-based insurance score.

Each scoring model uses a different scale of numbers or letters, which is why your score isn’t as important as whether your rating is trending up, flat, or down. Even if you hit the top of one score, you may not for others.

Myth #12: Closing a credit account erases its history.

Truth: Closing a credit card or paying off a loan doesn’t make it fall off your credit reports. So, don’t think that you can go unnoticed by simply cancelling an account with late payments.

All information related to a credit account with negative information stays on your credit report for seven years. If an account only has positive data, it remains in your file for 10 years.

See also: Late Payments and Your Credit: Tips to Minimize the Damage

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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.