Credit Score Myths That Keep Americans From Improving Theirs

This myth stops many people from monitoring their own credit — which is precisely the opposite of what financial health requires. Credit inquiries come in two types: hard inquiries, triggered when a lender checks your credit during an application, and soft inquiries, which include your own checks, employer background pulls, and pre-approval screenings. Only hard inquiries can affect your score, and even those typically lower it by only a few points temporarily. Regularly reviewing your own report is encouraged by consumer protection law — you're entitled to free reports from each of the three major bureaus annually via AnnualCreditReport.com. See your rights under the Fair Credit Reporting Act for more on what you're legally owed.

This misconception is both wrong and costly. Credit scoring models reward you for using credit responsibly, not for paying interest. What actually matters is that you have an active account and that your reported balance stays low relative to your credit limit — a factor called credit utilization. Paying in full each month keeps utilization low, avoids interest, and demonstrates responsible repayment behavior. Carrying a balance serves only the lender's bottom line, not yours.

Intuitively, it might seem responsible to close cards you don't use. In practice, it can backfire. Two key scoring factors work against you: credit utilization (the ratio of your balance to your total available credit rises when you remove a card) and length of credit history (older accounts contribute positively to your average account age). There are legitimate reasons to close an account — such as avoiding a high annual fee — but doing so purely to tidy up your credit profile often produces the opposite of the intended result. For a foundational look at how credit accounts interact, see how credit and debt connect.

It's a reasonable assumption — higher income should mean lower risk, right? But credit scores are calculated entirely from data on your credit report, which tracks borrowing and repayment behavior, not earnings. Factors like payment history, amounts owed, length of credit history, credit mix, and new credit all feed into your score. Income may be considered separately by lenders when evaluating a loan application (as part of a debt-to-income calculation), but it does not appear in your credit file and plays no role in score calculation.

This myth leads some people to give up on improving their credit after a financial setback. Under the Fair Credit Reporting Act, most negative information has a defined shelf life. Late payments, charge-offs, and collections typically fall off after seven years from the date of the original delinquency. Bankruptcies can remain for up to ten years depending on the type. The practical implication: even serious credit damage diminishes over time, and actively building positive habits — on-time payments, low utilization — begins to shift the picture long before those items disappear entirely. If you're working through debt as part of credit recovery, understanding common debt payoff mistakes can help you avoid setbacks.