• Courtney Heard

7 Credit Myths And Why They're Wrong

Updated: Apr 26


Credit myths - financial blogging services
Credit Myths

Your credit score can affect countless things in your life: your ability to obtain meaningful employment, your eligibility to rent a home, your chances of being approved for a car loan, a mortgage, or any other sort of credit. The list goes on. It's an important number for every Canadian to understand, and yet so many of us don't truly understand our credit score. Many of us think we do, but often it turns out most of what we thought we knew about credit and credit scores were just myths.

There are so many credit myths that make the rounds in our society today that it was hard to pick just a few for this list. I managed to narrow it down to seven really important and commonly believed myths about credit:


Myth #1: You can boost your credit by not using your credit products


This is false. The purpose of a credit score is for potential lenders to see what sort of borrower you are. Do you pay what you owe back on time and in full? If you have nothing to pay back, there really is no way to assess your debt-paying habits. The best way to get around this without going into debt is to use your credit cards for the things you were going to buy anyway, then use the money earmarked to pay off your credit card in full. It is the act of using your credit products responsibly that truly boosts your credit.


Myth #2: Checking your own credit can bring your score down


There are two types of credit inquiries: hard inquiries and soft inquiries. Hard inquiries are when potential lenders check your credit to determine if you are someone they would like to lend to or not. These sorts of credit checks can hurt your credit score if you have too many of them occurring in a small amount of time. Soft inquiries don't have the ability to hurt your credit no matter how often they occur. When you check your own credit, this is a soft inquiry. When your credit card company periodically checks your credit to preapprove you for credit increases, this is a soft inquiry. Checking your own credit is one of the best things you can do on the road to better credit, and it absolutely will not damage your score at all.


Myth #3: To boost your credit, close your credit card accounts


Part of what goes into your credit score is what is called your credit usage percentage. This is the percentage of your total credit that you have used. For example, if you have a credit card with a limit of $5000 and a line of credit with a limit of $10000, your total credit is $15000. If you have a balance of $2000 on your credit card and a balance of $3000 on your line of credit, you have a total of $5000 used, which is 33% of your total $15000 credit. This is nearing a good usage percentage as most financial experts will tell you to keep your usage below 30%. Anything above that can be detrimental to your overall credit score. Now, imagine you close the credit card with a $0 balance. Now you have a total of $10000 credit with the $5000 total balance. That's a 50% usage percentage. This can have a negative effect on your credit score. In reverse, getting a limit increase on one of your cards can bring your percentage down to the good zone. Your credit is also affected by the average age of your credit accounts. The older your average age is, the better, so if you close one of your oldest accounts, you can actually bring your average age down, which, in turn, can bring your overall score down.


Myth #4: Your credit is affected by your income


This is simply not true. The credit bureaus have no idea what your income is and don't keep records of it. They will keep records of your employment for identification purposes, but your income doesn't register.


Myth #5: If I'm married, I share my credit score with my spouse


Nope, you both have your very own credit score. The only way your spouse can affect your credit score is if he or she spends the money you had earmarked to pay your bills. Your joint accounts will show up on both of your reports, but your reports remain separate.


Myth #6: I can use my utility bills to build my credit history


Most utilities do not report accounts in good standing to the credit bureau. The only time you're ever going to see a utility bill on your credit report is when you fail to pay it, and it gets sent to collections. You cannot build credit with utilities, but you can certainly destroy it.


Myth #7: My bank accounts affect my credit score


None of your assets affect your credit score. The credit bureaus will only keep track of your loans, credit cards, mortgages, and other forms of credit your financial institution extends, but credit is where it ends.


Your credit score is one of the most important things to understand, so make sure you're sticking to the facts and dismissing the myths.


Did you believe any of these myths before you read this? Which ones? Let us know in the comments!


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