Bankrate debunks these 10 credit card myths

Before I started writing about credit cards in February 2018, I had all kinds of thoughts about how they worked. My three-year stint as an editor at The Points Guy opened my eyes to what’s real — and what isn’t — when it comes to keeping your credit score high and your credit history clean.

Your FICO credit score — one of the two most commonly used credit scoring models, in addition to VantageScore — is determined by five factors. Keeping track of these factors goes a long way toward keeping your score in the good range (which starts at 670 on a scale of 300 to 850).

There are a lot of myths attached to the acquisition and use of credit cards, and when you believe the bad ones, your score could suffer. Below I share 10 credit card myths and offer some credit card facts.

10 credit card myths, busted

Credit card myths tend to persist because figuring out a credit score can be very confusing, says Lindsay Bryan-Podvin, a financial therapist, licensed master social worker and founder of the website Mind Money Balance. “Your score is either in the weeds and you need to hack it, or it’s bad and you should avoid dealing with it at all costs,” she says.

To add more confusion, some of these myths can have a bit of truth to them. “For example, your income does not affect your credit score, but your income is a consideration when it comes to qualifying for a loan or qualifying for how much credit you are extended on a credit card,” says Bryan-Podvin.

Myth 1: Income can affect your credit score

False. Your income doesn’t show up on your credit report. Instead, credit card issuers check your credit report, credit score and past payment history to ensure you can be trusted to pay your bills. Those with low-to-moderate income are just as likely to get approval for a credit card as someone with a high income, if you have a record of paying bills on time.

Myth 2: You need a credit card balance to build your credit score

False. Card balances can hurt your credit score, especially if your credit utilization ratio is high or you don’t make payments on time — two of the five factors that determine your credit score. You also end up paying more for your credit because interest charges stack up on outstanding balances.

Paying off your balances every month shows that you’re a responsible cardholder and keeps your credit score high. So as long as you do not have any debt on your active credit lines, you should have a high credit score. Use your no-balance credit cards to pay bills every so often so an issuer doesn’t close your account due to inactivity.

Myth 3: Applying for a credit card hurts your score

True, but… It’s natural to see your credit score drop a few ticks after you apply for a credit card. But if you make card payments on time and keep your credit utilization ratio down, your score should bounce back within 6-12 months. Once the new credit line is added to your report, your score may actually increase if the new credit available to you improves your overall credit utilization ratio.

Myth 4: Credit repair companies can fix your score

False. It’s tempting to consider using these companies to “fix” your credit score. The truth is that while these companies charge money and promise to remove information from your credit report, they don’t have the power to raise your credit score instantly.

Save your money and do the work yourself instead. Order a free copy of your credit report at AnnualCreditReport.com, comb through it for inaccuracies and dispute any information that looks incorrect. If you need help, reach out to reputable nonprofit credit counselors that can help you create a debt management plan. It takes time, but if you stick with it, your credit score will rise.

Myth 5: Canceling unused cards helps your credit score

False. When you cancel a credit card, your score may take a hit if your credit utilization ratio drops. Your account history is another factor FICO uses to determine your credit score. When you cancel a card, the length of your credit history may change, which could also negatively affect your score.

Instead, if your card has no annual fee, keep it in your sock drawer and use it every so often to keep it active. If the card has an annual fee, check the length of its credit history. If it’s among your oldest cards, you might want to keep it and pay the annual fee to avoid the credit score drop that could happen if you cancel the card. If not, the potential score drop may be worth the money you’ll save if you decide to cancel the card.

Myth 6: Having too many credit cards can hurt your credit score

False. It sounds counterintuitive, but the type of credit you have accounts for 10 percent of your credit score. The three credit reporting bureaus want to see a mix of credit, such as credit cards, a mortgage, a home equity line of credit, a car loan, a personal loan or student loans. If you have a wallet full of credit cards, but no loans, your credit score could be negatively impacted.

Myth 7: Student loans don’t hurt credit scores

False. Student loans, like any other type of loan, are included in your credit report. Not paying them on time hurts your payment history, credit history and credit mix — three important factors that determine your credit score.

Student loans are a type of installment loan, similar to a car loan, personal loan or mortgage. Paying on time could help your score. Be late or skip a payment, and your score may drop.

Myth 8: Marriage can affect your credit score

False. Each person in a marriage has their own credit score, since credit reports don’t include your marital status. Once you’re married, you’re not responsible for each other’s pre-marital debt. However, if you and your spouse apply jointly for a credit card, an issuer will consider both credit scores when making a decision. If approved, you’re both responsible for that debt.

Myth 9: One missed payment will cause your credit score to drop

True, but… Payment history accounts for 35 percent of your FICO credit score. If you miss a payment (even a minimum one), it might be reported to the three credit reporting agencies, which may cause your credit score to drop. If it was a one-time mistake, you can ask the three credit bureaus for forgiveness to see if they’ll remove the missed payment from your credit report. Avoid this in the future by setting calendar reminders or phone timers so you don’t miss your payment due dates.

Myth 10: Your credit score drops every time you check it

False. You should check your credit report at least once a year, although you can order a report weekly for free through AnnualCreditReport.com. Review your reports from each bureau for inaccurate information that could negatively impact your credit score. Doing so can also help you catch fraudulent activity on your cards.

The bottom line

Credit card myths can sound perfectly credible, says Bryan-Podvin. “But it’s important to take a beat and say ‘this was something I believed, but let me figure out how true it is and if this particular myth is impacting me,’” she says.

However, ignorance of your credit score and details on your report can have a catastrophic impact on your credit. In a worst-case scenario, negative information submitted by the three credit-rating bureaus could take up to seven years to be removed from your credit report, making it much harder to apply for credit cards and loans. You also face paying higher interest rates on financial products.

Check out Bankrate’s credit resources section for more information.