Understand what a Credit Score Myth is

There’s a bunch of misinformation out there when it comes to what exactly affects your credit and what to look out for. In fact, a Zillow Population Science study stated that Americans could only get 40% of the questions related to credit and the scoring system. This is both with young and old adults in the US.

Image: Krediit

A big chunk of this misinformation comes from social media channels and how there apparently is a huge influx of so-called financial ‘experts’ within the US. These social media channels may work to stop fake news but do little to stop the influencer culture of misinformation. That’s why there’s so much mystery when it comes to your credit score and how to improve it.

Taking the time to separate what a myth is and what is real when it comes to financial information can save you a lot in the long run, making your financial management a lot easier.

Where the real damage is truly done when it comes to credit myths

Let’s review some of the biggest misconceptions out there. We’ll look at six below that actual experts work tirelessly to disprove.

Carrying a balance myth. This is a big one and really doesn’t make any sense. Some out there state that having a monthly debt or balance on your credit card helps raise your credit score.

Not only is that completely false, it means you will be stuck paying those credit card interest fees for no reason because you had a balance the month before.

“In reality, it’s your credit utilization that’s key, not actually carrying a balance, that will affect your credit score.” States Kimbree Redburn, who is the owner of Illuminate Financial LLC and is also a financial coach in Bozeman, Montana.

Redburn clarifies further, stating that it’s all about the balance of debt you have versus the total amount you can use. This is known as the credit card utilization ratio.

“Keep this ratio at 30% or less if you want to improve your credit score.” Says Redburn. “At the same time, you are able to pay off in full as often as possible as people think utilization means using the card by carrying a balance, leading to heavy interest fees and monthly charges.”

“Keeping to that ratio or even at zero is what helps your score.” Says Redburn.

Constantly looking at what your credit score is actually damages the credit score

False again here, with the thought process being every time you check your score, it’s a ‘hard’ credit check that will have an effect on your score. So it’s actually not true at all.

Redburn adds, “Checking your credit score is typically a soft pull which means it’s not going to affect your credit score or even be acknowledged on your report. However, people should periodically be checking their credit scores and not be blind to any issues or errors that may have popped up.”

Don’t worry about installment loans and your credit score

Another dangerous misconception is that large debts are not going to affect your credit score much. These types of loans are your student loans, car loans, and even your mortgages, and are thought of as long-term debts.

“People will need some type of installment-based loan on their credit history.” Says Matt Schmidt, who is the CEO of Diabetes Life Solutions, based in Pittsburgh, PA. “Looking back, when I decided to pay off my student loans early, it was actually the only type of installment debt that I had. But, unfortunately, after it paid off, I discovered my score had dropped! This made my fresh mortgage application return with a higher interest rate.”

He had to be patient for a few months for the score to recover and purchase the home later.

Income is a core factor in your credit score

The myths continue with this big one. In fact, your current income really has nothing to do with your credit score. Michael Hammelburger, CEO of The Bottom Line Group in Baltimore, Maryland, said, “All your income or salary do for you is show potential lenders you have a means of paying off any debts that come your way. They do not measure in any way if you are going to be a credit risk or not.”

If you are married, your credit score is combined

Being married has nothing to do with your individual credit score. “This became a huge piece of misinformation during the pandemic especially. Yet that is another false piece of information when it comes to how a credit score works. There is not a combined credit score report out there.” Said Hammelburger.

Consolidating your debt is dangerous

In so many ways, the opposite is actually true. This may be in reference to taking out another loan to consolidate all of your existing debts. Most likely, that will be a hard credit check and will slightly affect your score in the beginning. Yet you will also be able to eliminate multiple monthly payments and possibly reduce the rate of interest you’re paying, helping bring down the overall debt you owe and raising your score.

Hammelburger continues, “The moment these loans are being paid on time, the moment your overall utilization ratio improves, and you will be able to close those bad debt accounts. So don’t focus on the temporary impact of the new debt, but focus on making those payments in a timely fashion.