Years ago, long before I became a full-time trading expert, I made a rookie mistake that still makes me cringe.
Back then, I thought I had a strong financial profile. I wasn’t carrying any credit card debt, I paid my bills on time, and I avoided loans like the plague. In my mind, that meant I was “winning” at personal finance.
But when I applied for a mortgage in my mid-20s, reality hit hard. Despite my clean financial habits, the lender offered me higher interest rates than I expected. Why? My credit score was lower than it should’ve been.
I had fallen for a handful of common credit myths, and it cost me.
Today, I understand the markets, risk, and capital flows inside and out. But back then, I didn’t understand how things like credit utilization, payment history, or even closing credit cards impacted my score.
Now that I coach traders and professionals on building wealth, I always remind them: credit literacy matters just as much as investment literacy. If you’re planning to borrow, invest, or just manage your finances wisely, knowing how your credit score really works is essential.
Here are the 9 most damaging credit score myths I see people believe, often without realizing it.
1. Checking Your Own Credit Score Hurts It
MYTH: Checking your own credit lowers your score.
TRUTH: Monitoring your score has zero negative impact.
Let’s clear this up: checking your own credit score is considered a soft inquiry, which does not hurt your credit. In fact, regularly checking your free credit reports or using apps that track free credit scores can help you catch fraud or mistakes early.
The confusion usually comes from hard inquiries, which happen when a financial institution checks your credit for a credit application (like a loan or credit card). Those can shave a few points off temporarily, but checking your own score? Totally safe.
2. Carrying a Balance Helps Your Score
MYTH: Leaving a credit card balance shows you're responsible.
TRUTH: Carrying a balance only helps your card issuer earn more in interest charges.
Many people think carrying a small balance builds credit. It doesn’t. The best way to build a strong credit history is by making on-time payments and keeping your credit utilization ratio low.
If you’re constantly carrying a balance, you’re likely paying interest you don’t need to. It’s not helping your score, it’s draining your cash.
3. Closing Credit Cards Improves Your Score
MYTH: Less credit accounts = a higher score.
TRUTH: Closing old accounts can actually hurt your score.
It sounds logical, fewer credit accounts, fewer chances to mess up, right?
Wrong. When you close a credit card account, two things often happen:
- You shorten your credit history.
- You reduce your total available credit, which increases your utilization rate.
Both of those can lead to a lower credit score. Unless the card has a steep annual fee, it’s usually better to keep it open and active.
4. You Only Have One Credit Score
MYTH: There's a single score that lenders use.
TRUTH: You have many credit scores, and they may vary depending on the lender.
Your FICO score might be different from your VantageScore , and both can vary depending on which of the three nationwide credit bureaus (Experian, Equifax, and TransUnion) the lender pulls from.
Different credit scoring models weigh factors differently. That’s why your own credit score might fluctuate depending on where you check it.
What matters most is consistency in your credit behavior.
5. Paying Off Debt Erases It from Your Credit Report
MYTH: Once you pay it off, it disappears.
TRUTH: Paid accounts can still appear on your report for up to 7 years.
Paying off loans or collections is great for your financial health, but it doesn’t mean the item vanishes from your credit report immediately. Whether it’s a credit card bill, installment loan, or even a joint loan, your payment history sticks around.
What changes is how it’s reported. A paid collection looks much better to lenders than an unpaid one, but both can still show up.
6. Income Affects Your Credit Score
MYTH: The more you earn, the higher your score.
TRUTH: Your income isn’t part of the equation at all.
This surprises people. Your credit score is based on things like on-time payments, credit utilization, credit mix, and new credit applications, not your salary.
Of course, income plays a role when you apply for loans. Lenders look at your employment history, marital status, and ability to repay. But in terms of calculating credit scores, income is irrelevant.
7. You Don’t Need Credit If You Don’t Borrow
MYTH: If you avoid debt, you don’t need a credit score.
TRUTH: A thin or nonexistent credit file can still hurt you.
Even if you don’t borrow, your credit can still be checked when you rent an apartment, apply for utilities, buy insurance, or even apply for a job.
No credit history or low score can raise red flags. Building credit with a secured card, becoming an authorized user, or responsibly using credit cards is essential, even if you pay it all off each month.
8. A Credit Repair Company Can Quickly Fix Your Score
MYTH: Credit repair companies have special tricks to boost your score fast.
TRUTH: If it sounds too good to be true—it usually is.
Some credit repair companies promise fast results by disputing every negative item on your report. But if the info is accurate, it won’t be removed, and they’re charging you for something you could do yourself through the nationwide credit bureaus.
Only time, good credit management, and solid habits can truly rebuild a score.
9. You Need a Perfect Score to Get the Best Rates
MYTH: You need an 850 to get approved or respected by lenders.
TRUTH: Anything above 760 usually gets you the same perks.
Chasing a perfect 850 might sound like a good goal, but it’s rarely necessary. Most lenders don’t treat someone with a 760 any differently than someone with an 825. Once you’re in the “excellent” category, you’re already eligible for the best credit products and interest rates.
Focus instead on maintaining a healthy credit mix, low credit utilization, and consistent on-time payments.
Final Thoughts: Credit Literacy Is Wealth
In trading, we know the power of timing, risk management, and long-term strategy. The same mindset applies to credit.
Understanding how your credit score is calculated and avoiding these common credit myths can put you miles ahead. Whether you're investing, applying for a mortgage, or simply trying to improve your financial situation, a strong credit foundation gives you more leverage.
It’s not just about numbers, it’s about opportunity as well. And like any smart investment, the earlier you start building it, the bigger the payoff.
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