Finance Series, Part 1: Credit score fact vs fiction

Quick—what’s your credit score? Surprisingly, a vast majority of people would not be able to answer this question. What these people also may not know is that this information can be freely obtained from one of the three major credit agencies—Equifax, Experian, and TransUnion—each calendar year. If you strategically space these reports out, then you can track your score every quarter or so.

Unfortunately, this data may not be too helpful if you don’t know fact from fiction when it comes to your credit score. Recently, Quizzle—a site dedicated to credit scores—published a list of the top credit score misconceptions, and there are some interesting myths on the list. Here are some facts you might not know—or wrongly know—about your credit:


Settled debts do not get dropped from your credit report. Many people think late payments and bad debts get dropped promptly from their credit report once the problem is resolved. Unfortunately, this is not the case. These missed payments and debts linger for 7 years, and bankruptcies may stay on reports for 10 years.

Paying with cash does not help your credit score. This doesn’t factor into your credit at all; credit reports (and credit scores) care only about what you buy on credit; if you stop using your credit cards in favor of cash, then it doesn’t really factor into your equation at all. It’s more important to use credit responsibly than to stop using it entirely.

Closing credit cards does not improve your score. This is a close cousin of the myth about paying in cash, though it is a little more complicated. Closing out credit cards is unlikely to improve your credit rating; in fact, it can hurt. Agencies want to see a low credit utilization—that is, the ratio between the credit you’re using and the credit you have available. Ideally, you’re keeping that number under about 30%. As you can see, closing credit card accounts can drop your available credit without affecting your outstanding balance, and that can be bad.

Making credit inquiries won’t necessarily hurt your credit. Many people think that just looking at your credit will harm it, but that’s not always true. Soft inquiries, such as when you request your credit report for personal reasons, generally have no effect on your rating. Hard inquiries from banks, credit cards, and loan companies definitely do have a small but measurable impact on your score.

A high income will not improve your credit rating. Many young folks fresh out of school think that their credit score will go up as a natural consequence of getting better-paying jobs. That’s not the case; again, your credit rating is only a measure of how you manage your credit, so income is irrelevant to the equation (though it might help you pay down your credit).

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