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Top 5 Credit Score Myths Debunked

Last updated May 9, 2024

It can be tricky to figure out how credit scores work. There’s a lot of conflicting information and even well-intentioned advice can turn out to be wrong, so it’s no surprise that credit score myths abound. In this post, we’ll set the record straight on the top 5 credit score myths. Don’t let these common fallacies derail your path to a better financial future.

credit score myths

Let’s start with a review of how your credit reports and credit scores fit together.

A credit report includes detailed information about how you have used credit in the past, including how much debt you have and if you’ve made on-time payments. Three major credit reporting agencies (a.k.a. credit bureaus) track your information: Experian, Equifax and Transunion. You can check your credit report from each agency once a year for free. Checking your own credit report does not negatively impact your credit report or credit score.

A credit score is a three-digit number based on the information in your credit report. Multiple companies have models that calculate credit scores. VantageScore and FICO, for example, both provide scores that operate on a scale from 300 to 850. It’s easy to keep track of your credit score through Upgrade’s Credit Health – a suite of free credit monitoring and credit education tools.

Top 5 Credit Score Myths Debunked

Myth #1:  I’m not planning to get a new loan or credit card anytime soon, so whatever is happening with my credit report or credit score doesn’t matter.

Truth: Even if a new loan or credit card isn’t on the immediate horizon for you, your credit report and credit score are still important. Insurance companies, utility companies, landlords and potential employers can all request your credit report. Whether or not you get that great new apartment or job could be influenced by your credit—so it’s wise to continually monitor your credit profile and make smart financial decisions. You should also keep an eye on your credit report to detect and remedy identity theft and reporting errors.

Myth #2:  Using cash or debit cards for everything is the best way to boost my credit score.

Truth: Your credit score is helped by a strong history of on-time payments and responsible management of debt. Because cash and debit card transactions aren’t reported to the credit bureaus, they won’t help your credit score. Using some cash can help you stick to a budget and develop better financial habits—but to build a strong credit score, you’ll also need to establish a positive record that demonstrates you can handle debt and make on-time payments.

Myth #3:  Shopping around for the best interest rate will hurt my credit score.

Truth: When it comes to mortgages, auto loans and student loans, credit scoring companies know that it’s smart to shop around for the best rate—so they treat multiple inquiries for the same loan during a certain window of time as just one hard inquiry. The window varies from 14 to 45 days, depending on the credit scoring company. Go ahead and submit multiple applications for your mortgage—just make sure you get it done within a short time frame. One notable exception is credit cards: each application for a new credit card is treated as a separate hard inquiry and will have its own impact on your credit score.

FYI: A hard inquiry can occur when a financial institution accesses your credit report because you are applying for credit. Each time you take on more debt, the risk that you won’t be able to make all your payments increases. As such, your credit score will generally decrease slightly when a hard inquiry is submitted because it indicates you are applying for new credit.1 Multiple hard inquiries can have a bigger impact on your score if they aren’t submitted within a short time frame for the same type of credit.  Learn more about how applying for credit impacts your score here.

At Upgrade, when you check your rate for a personal loan we perform a soft inquiry on your credit report, which does not impact your credit score. If you receive a loan through Upgrade, we will perform a hard inquiry, which may impact your credit score.

Myth #4:  Closing credit card accounts will help my credit score.

Truth: Closing credit card accounts could decrease your score because of the impact on your credit utilization, which is a key piece of your credit score puzzle.

Credit utilization measures the balances you owe on your credit cards relative to the cards’ credit limits. Credit utilization ratios can be calculated for each credit card (card balance divided by card limit) and on an overall basis (total balance on all cards divided by sum of credit limits).

Paying off the balance on a card is always a good idea—it helps the numerator of your credit utilization ratio calculation. Once you reach a $0 balance, it’s usually best to keep the card open to maintain the total limit, thereby lowering your credit utilization ratio. One possible exception: if your card has an annual fee, you may want to close it after paying down the balance.

Closing credit card accounts can also shorten your overall credit history. Scoring models generally reward a lengthy, responsible history, so keeping a long-standing card open could be beneficial.

Myth #5:  My income, bank accounts and investments impact my credit score.

Truth: No information about your income, bank accounts or investments is reported to credit bureaus, so they don’t show up on your credit report and won’t impact your credit score. (However, items like unpaid bank fees sent to collections will show up.) Here is a list of exactly what is included on your credit report and reflected in your credit score.

It’s important to note that lenders often consider multiple pieces of information about you when deciding how much you can borrow and under what terms. Your income, bank accounts and investments will usually be considered when you’re applying for a loan—just know they are considered outside of your credit report and credit score.

Learn more credit score truths, plus tips for achieving your financial goals on Upgrade’s Credit Health Insights and sign up for Upgrade’s Credit Health for easy access to your free credit score.

  1. Hard Inquiries

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