If the average credit scores in each state are any indication, where you live can have an effect on your financial responsibility.
For instance, those in Minnesota boast the highest average credit score, at 713. The average in Mississippi is just 652.
No matter where you go in the country, credit myths abound. Whether it’s false tricks that promise to boost your score right away or poor advice that lowers your score instead, falling for these tricks is a big mistake.
In some instances, they could cause you to make money moves that will affect your credit for years to come.
Before you start working to build credit or improve your current score, keep reading to learn 10 credit myths to avoid.
Check out for more on how to improve your credit score.
1. You Should Maintain a Credit Card Balance
One piece of bad credit advice that gets tossed around from time to time is that you need to maintain a balance on your cards. Proponents of this theory believe that by maintaining a balance that you are paying towards each month, this will get reported back to the credit bureaus as responsible debt management.
The reality is that the best way you can demonstrate debt management is by not incurring any in the first place.
It is true that you need to use your credit cards in order for them to improve your credit. You should be creating a balance on one or two credit cards with a strong credit history.
Then when the due date for the bill for that card comes around, pay your balance in full. This will go much further in showing that you are a responsible spender. It will also lower your credit utilization ratio, which is good for your credit. And, of course, you won’t get stuck paying interest!
2. Opening New Cards Hurts Your Score
It is true that opening too many new credit cards is a bad idea. It’s also true that opening a new account will cause your score to drop at first.
However, that drop is only temporary. And after you keep that card open, use it responsibly, and pay it off, that new card will actually start to help boost your credit score.
One big way that you can use a new credit card to improve your credit score is with a balance transfer. Getting a credit card with a lower interest rate, and then transferring your balance from another card, will help you pay down your debt faster, eventually boosting your score.
3. The Amount of Debt You Have Determines Your Score
This is a common myth because it is partially true.
The amount of debt you have does matter, but it doesn’t directly determine your credit score according to Investopedia. What does determine it is how much debt you have in relation to how much free credit you have available. This is called your credit utilization ration.
This ratio accounts for 30 percent of your score. You should aim to use 15 percent or less of your available credit in order to keep your score high.
4. Checking Your Score Will Lower It
As far as credit myths go, this may be the most widely believed. In fact, even television commercials utilize it to trick consumers into using their services.
In reality, checking your credit score on your own will never lower it. It doesn’t matter if you receive a credit check through your credit card provider or a third party service. As long as you are the one checking your score, you won’t take a hit, no matter how often you check.
In fact, you are entitled to receive one free credit report from each of the agencies (Experian, Equifax, TransUnion) each year, according to the FTC. You don’t even need to visit their websites – you can get it directly from AnnualCreditReport.com.
However, not all credit checks will go unnoticed on your score. When someone else checks your score, it is considered a hard inquiry. This includes car dealerships, loan provider, etc., who need to check your score to determine whether to offer you a loan or mortgage and what rate you qualify for.
These hard inquiries can drop your score anywhere from one point to several; there’s no rule about how exactly your score will be affected. Occasionally, even a hard inquiry won’t have any effect on your score.
These hard inquiries go into your “new credit.” This accounts for 10 percent of your overall score. After 12 months, these inquiries will no longer affect your credit score.
5. You Should Close Credit Cards You Don’t Use
Whether its a store credit card that you only signed up for to get a discount or a regular card you simply no longer use, it can be tempting to close out credit cards you don’t think you need. Think twice before calling in to cancel though.
The age of your credit cards accounts for 15 percent of your FICO credit score. Closing out accounts has a negative effect on your score, even if its a card you rarely use.
You should aim to make at least one payment on your card each month though. Otherwise, some creditors may eventually close your credit card for you out of lack of use.
6. Debt-To-Income Ratio Affects Your Score
This next myth is likely the result of some confusion about the difference between debit, credit, and income.
The ratio of debt to credit you have will affect your credit score. But the ratio of debt to your income will not. In fact, credit bureaus have no way of knowing what your income even is.
The only time your income may be a factor in a financial decision is when you’re applying for a mortgage, as lenders will want to know that you will have enough money coming in to pay them back.
7. Paying Collections Will Raise Your Score
If you’ve received a collections notice for an unpaid debt, you may think paying it will boost your score just like paying a credit card bill. But that’s not the case.
While you do need to pay it to avoid more charges and legal trouble, once you receive a collections notice, the damage is done. The collections will be reported and will lower your credit score. Paying it will not reverse the effect.
8. Getting Married Means Combining Your Credit
After you get married, you may choose to buy cars or houses, or otherwise, take on shared debt. While this new debt will affect both of your scores, getting married doesn’t mean sharing your previous debt.
Your credit score remains your own. It won’t affect your spouse’s score in any way. Only after you start co-signing on guaranteed loans will you start seeing both scores affected by a shared debt.
9. One Late Payment Won’t Hurt Your Score
Whether its credit card payments or making a mistake at work, we all want to believe that one mess-up won’t hurt us in the future. If you’ve always been a loyal, responsible credit card customer, making your payments dutifully each month, it may seem like the credit card company owes you one free pass.
In some cases, you will get this pass. Some credit cards now waive your first late fee.
But when it comes to late payments being reported to credit bureaus, there is no such thing as a free pass.
Missing an installment loan payment by a few days or even a week won’t hurt your score. That’s because it won’t even get reported to the credit bureau. As long as you make your payment before it is 30 days late, the credit bureau will never even know.
Let it go past that 30-day mark though, and it will have an effect on your credit, whether it’s your very first late payment or if you’ve had several.
10. You Need to Make a Lot of Money to Have a Good Score
Having a lot of money would certainly make it easier to pay your bills. But that doesn’t necessarily mean that you’d have a high credit score, or that not having a lot of money guarantees a low credit score.
Instead, paying your bills responsibly, no matter how much those bills amount to, has far more of an impact on your credit than your income. Practice good money habits, and you can earn a very good or even exceptional score without needing a ton of income.
An 800 or higher is considered a very good credit score. Anything from a 740 to a 799 is a very good score. From 670 to 739 is a good score, and below that is a fair or even poor score.
Spotting Credit Myths to Avoid
These credit myths to avoid are far from the only ones out there. But learning to pick facts from fiction is important if you want to responsibly manage your own finances.
If you’ve let credit card myths, bad credit loan advice, or poor decisions lower your credit score, it’s never too late to start turning it around.
Check out the best credit cards for those with bad credit to learn which cards can help you start building better credit today! We can also help you find no credit check loans, same day payday loans, and other personal loans that fit your lifestyle. Be sure to look through our blog to find out more.