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The Truth Behind Your Credit Score and Report

The Truth Behind Your Credit Score and Report

You may have heard about the great kidney heist story, or that mixing Coca Cola and Pop Rocks candy will cause stomach explosions. These are just a few urban legends circulating out there. But have you heard any of the popular untruths surrounding credit scores and credit reports? You probably have, and might have been accepting them as fact...until now. Read on to discover the real deal on some crazy credit report canards.

Five Credit Score Myths Debunked

Myth #1: I don’t need to worry about my credit score or credit report if I pay my bills on time.

Many consumers are under the impression that if they pay their bills on time and are otherwise financially responsible that they will automatically be rewarded with a good credit score. This is untrue, simply based on how a credit score is measured – by your use of credit. Regardless of your good behavior, if you have not been using credit, you may find your credit score to be less than favorable or even nonexistent.

This will become a problem if and when you: 1) Attempt to borrow money from a lender, 2) Obtain a quote for insurance premiums, or 3) Attempt to rent a property.

Likewise, your credit report is not a reflection of your bill paying and savings habits. In reality, credit reports can often be inaccurate, leaving out positive info and/or showing incorrect data which could have a negative impact on your score and, in turn, your borrowing power. If you check your report periodically, you’ll be aware of all activity – good and bad.

Long story short – maintain a decent credit score by responsibly using a credit card for several bills on a regular basis, and be cognizant of your credit report activity by checking it at least annually.

Myth #2: Checking my report will hurt my credit.

While most people understand the importance of keeping tabs on their credit, this pesky myth does seem to get in the way for others. There is no reason to believe that obtaining your credit report from a legitimate source will in any way have a negative impact on your score. Do be sure to use a site that has been authorized by the federal government such as

Rather than hurting your credit score, this may actually help you improve it if need be, by making you aware of any errors that exist on your report.

Myth #3: Paying off debt will lower my score.

Contrary to what some people believe, you do not have to be in debt to have a good credit score. In fact, paying balances off, or even down, can contribute to a higher score. And the smaller the percentage of your credit limit you use, the better.

Plus, if you have other types of loans (i.e. vehicle loan, mortgage, student loan, or personal loan) that you are actively paying down, you’re on the road to a better score.

These strategies will not only help to maintain a good score, but will also work toward improving a bad score.

Myth #4: Too many credit cards will hurt my score.

Although this may have been an issue in the past, nowadays having numerous credit accounts in good-standing actually exhibits your debt management skills and shows that creditors have enough faith in you to extend these credit lines.

Of course it’s never wise to go to any extreme – for example, opening a slew of credit cards during the holidays probably isn’t a smart idea. However, having several active credit cards, which you use wisely and responsibly will show creditors that you know how to handle credit, and will translate to a good credit score.

Keep in mind, good credit card management means keeping track of due dates, avoiding late payments, and always covering the monthly minimum balance.

Myth #5: I should never close a credit account.

Although Myth #4 focused on why and how it’s ok to have several or even many credit card accounts open and active, it’s also important to discuss the other end of the spectrum. In general, closing an account will not really help and could potentially hurt your score, but under certain circumstances it is ok to close an account.

There are several things to consider before closing the account: 1) Why are you making the decision to close it?; 2) Is this the best time to close it?; and 3) Do you have enough other credit lines open?

First, if you are closing a major credit card account just because it’s gone unused for a while, that may be unwise because although unused it’s still contributing positively to your ratio of balances-to-limits. However, if you’re thinking about closing a department store card that you’ve been overusing and late in paying, that might be a good choice especially if you know you’ll be tempted to continue abusing it.

Secondly, if you know you are likely to be applying for some sort of loan in the near future, you might want to rethink the timing of closing your account and put it off if you can. Lastly, before closing any accounts, be sure you have a number of other ones open in order to avoid negatively impacting your score.

Many questions arise when it comes to the realities and myths related to credit scores and reports. Add to that the fact that each person’s financial situation is unique, and you may find yourself in need of some professional help when making decisions about your credit. When in doubt don’t hesitate to contact your local credit union for advice or for trusted credit counseling resources.

By Cyndi Cohen
Published November 19, 2013
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