Credit Myths That Cost Americans Money

This myth likely stems from a misunderstanding of the "amounts owed" factor in credit scoring. What actually matters is your credit utilization ratio — the percentage of available credit you're using at the time your balance is reported. A lower ratio is better. Carrying a balance month-to-month does not signal responsible use; it simply means you're paying interest to the card issuer for no scoring benefit. Paying in full by the due date keeps utilization low and eliminates finance charges.

Credit inquiries fall into two categories. A hard inquiry occurs when a lender pulls your credit to make a lending decision — this can temporarily lower your score by a few points. A soft inquiry — which includes checking your own score through a credit bureau, a free monitoring service, or a card issuer's dashboard — does not affect your score at all. In fact, monitoring your own credit regularly is a recommended practice for catching errors and detecting potential fraud early. You're entitled to a free credit report from each of the three major bureaus once per year at AnnualCreditReport.com, the site authorized by federal law.

Two scoring factors are directly affected when you close a card. First, your credit utilization rises because you now have less total available credit against the same balances. Second, if the closed card is one of your oldest accounts, your average age of accounts — a component of the credit history length factor — may drop. Before closing an account, consider whether the card carries an annual fee that no longer makes sense. If there's no fee, keeping it open and using it occasionally (then paying it off) may protect your score. The widespread credit score myths guide covers this and related topics in more depth.

FICO alone has released dozens of scoring model versions, and there are competing models such as VantageScore. Each major credit bureau — Equifax, Experian, and TransUnion — may also hold slightly different data about you, which means the same model applied to each bureau can produce a different number. Lenders choose which model and which bureau to use, so the score you see on a free monitoring app may differ from what a mortgage lender pulls. The most productive approach is to focus on the behaviors that improve scores across all models: paying on time, keeping utilization low, and limiting unnecessary new credit applications.

Credit scores measure your track record of managing credit obligations — not your wealth or earning power. Someone earning a modest income who consistently pays bills on time and carries low balances can have an excellent score. Conversely, high earners who routinely max out cards or miss payments will have poor scores. Lenders may consider income separately when evaluating loan applications (as part of a debt-to-income ratio calculation), but that is a manual underwriting step entirely separate from the credit score itself.