Credit Urban Legends

1. Closing a credit card will improve your credit score. If you close an older card it may cause your average credit age to be shorter. If you owe money and you close one of your credit cards it will lower your credit available and increase the percent of credit available used which will also lower your credit score.
2. Checking your credit report will lower your credit score. Only when you request a loan and a company checks your credit score will your credit score be lowered. You can check your credit for free through each of the three credit bureaus once a year. Or I just use Credit Karma and check my credit at least every month and sometimes more often.
3. You need to carry a balance on your credit card to improve your credit score. Just having the credit available helps your credit. If more than ten percent of your available credit is shown on your monthly statement it will decrease your credit score. Carrying a balance over ten percent will hurt your credit score usually.
4. Paying off your debts in full will hurt your credit score. Credit Usage is a major factor in your credit score. The more you owe, the higher your credit usage, the lower your score. However if you have no credit cards and no loans you will have a low score.
5. Your credit score can only be improved by paying off debt. There are several ways to improve your credit, including paying down your debt. Getting a higher limit or another card with a significant limit, getting negatives removed, and your credit history aging (average credit age) will all improve your credit. Also if you have a negative comment age out (be over seven years old) your credit score will improve.
6. You need to have a lot of credit cards to have good credit. Multiple credit sources, like a car loan, house loan and up to three credit cards that you have had for seven years or longer will maximize your credit score. With some scores if you have over five credit cards your score may be negatively impacted.
7. You need to make a lot of money to have great credit scores. You only need to develop three or more credit sources that report to the credit bureaus, make your payments on time, and do this for three or more years to have a good credit score. If you don't miss a payment in five to seven years you will have a great score.
8. You can fix your credit score by simply disputing errors on your credit report. Disputing errors on your report may increase your score, however if you have multiple negatives on your report that are true, your score may not improve. You also must build a good credit history. A good Credit History has multiple credit cards and possibly a car loan and possibly a home loan. All of these loans must have had their payments made on time.
9. A co-signer on a loan will not affect your credit score. If you co-sign on a loan it will affect your score as if you took out the loan yourself. If the co-signer misses a payment it will be as if you missed a payment yourself (ouch). I would never co-sign for a loan.
10. You can only have one credit score. There are several different credit scores that can be derived from your credit report. There are several different systems that rank your credit when you apply for a loan. The most common score is the FICO score however the Vantage 3.0 score is often used also. The Vantage 3.0 score imitates the FICO score however is will not be exactly the same.
11. Credit scores are not used by lenders. Most banks and home lenders will use your credit score. Collateral lenders like pawn shops or buy here paycheck lenders may not but you are not advised by me to use that type of lender.
12. Your credit score is only affected by big financial decisions, like taking out a loan. Your credit score is affected by many of the little financial things you do. How much credit you have available, if you miss a payment, even if you miss a cell phone payment may affect your credit score.
13. Paying off a debt that is in collections will improve your credit score. The collection record will usually stay on your credit history for up to seven years from the last payment you made on it. Check my article on Dealing with Collection Agencies
14. The Collection Service will deal fairly with you. From my experience that is not true. If you are going to pay off an item on your credit report make the service sign a contract that they will remove the negative they control from all of the credit bureaus. Never Pay off a Collection Item without doing this.
15. Credit scores are not used by insurance companies. Your car insurance, homeowners and sometimes your life insurance rate will be impacted by your credit score in many states.
16. There is no way to know what is affecting your credit score. The factors that affect your credit are well known. The primary factors are payment history, the amount of debt you have vs how much you have available, how long you've been using credit, new or recent credit applications, and the types of credit used.
17. Paying a debt late will always hurt your credit score. If the payment is over 30 days late and it is reported it will hurt your score. If it is not reported or you successfully request the late payment is not reported it will not affect your score. If you already have a horrible credit score another negative might not affect your score.
18. You can improve your credit score by only paying the minimum payment on your credit cards. This is absolutely backwards. You do not need to carry a balance or make only the minimum payment to improve your score. Not paying completely your monthly statement will probably get you into paying a lot of credit card interest trap. Check my article on the Minimum Payment Credit Card Trap.
19. You only need to check your credit report once a year. I check mine for free at least once a month and often more frequently. I use Credit Karma and have an alarm set with them that they notify me if there is any new activity on my account.