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Introduction

To some extent, your credit score is a black box - very few people in the world know exactly how it’s calculated - but we do know exactly which factors can move it up or down, largely because the credit bureaus tell us what those factors are.

But most people aren’t so familiar with what those factors are, leading to countless misconceptions surrounding credit scores.

I hear credit score myths almost daily from family, friends, and our customers at Pointwise, so this article is to debunk some of the most common ones I hear, so that you don’t believe them and cost yourself valuable points or money in the process.

Myth 1: Carrying a Balance Improves Your Credit Score

I’m not quite sure where this one started, but for some reason people think your credit score will go up if you carry a balance because you’re using your credit card more.

That premise is not true. Your credit score doesn’t improve because you’re using more of your available credit. In fact, your credit score will go down because carrying a balance increases your credit utilization, which is one of those factors that impacts your credit score.

Your credit utilization is your outstanding balance across all of your credit cards divided by the amount of available credit you have across all of your credit cards. So if you have $10,000 worth of available credit and a $1,000 balance across all of your credit cards, your credit utilization is 10%.

The lower your credit utilization, the higher your credit score. Not the other way around.

Don’t pay interest on a credit card balance you’re only keeping to increase your credit score. It’s actually hurting your credit score and costing you money in interest. Just pay off your cards in full every month.

Myth 2: You Should Close Unused Credit Cards

Another common misconception is that closing unused credit card accounts will improve your credit score. While it may seem logical to close accounts you no longer use, it actually negatively affects almost every factor that goes into measuring your credit score.

Your credit utilization goes up because your total available credit goes down.

Your average age of accounts goes down if you’ve had this card longer than your average card.

Your total number of accounts goes down.

It’s just not a great idea. The only time it does make sense to close an unused card is if it charges you an annual fee, in which case saving on the annual fee is probably worth the small hit that cancelling the card will have on your credit score.

That being said, many cards with an annual fee can be downgraded to no annual fee cards by just calling the credit card issuer and asking them. For example, the Chase Sapphire Reserve® and Chase Sapphire Preferred® Card can be downgraded for free to any of the no annual fee Chase Freedom cards by calling chase and just asking them.

This has the benefit of keeping your average age of accounts, total number of accounts, and usually also your credit utilization in a position to keep propping up your credit score, while saving you the unwanted annual fee.

Myth 3: Applying for Multiple Credit Cards Hurts Your Credit Score

This one’s based in truth - one of the factors that negatively impacts your credit score is your number of recent hard inquiries (also called hard credit checks or credit pulls).

So applying for multiple credit cards in a short amount of time will likely hurt your credit score a little. The logic behind this is that when people need credit, which is measured by when you’re asking for it (meaning when you apply for a new card), the credit bureaus think you’re a risky borrower.

The problem with treating this as gospel is that then you’d never apply for any credit, you’d never open enough cards, and the credit bureaus (and therefore your credit score) love it when you have access to lots of credit, but aren’t using it! That’s a sign of not needing credit, which is the opposite of a risky borrower!

This is why hard inquiries only impact your credit score for 6-12 months, and then they go off your credit report entirely after 24 months, but your average age of accounts and credit utilization look at accounts that are much older than 24 months.

So the way to think about it is as follows: applying for multiple new credit cards, or any new credit cards, might bring your score down a little in the short term, but as long as you pay your cards off in full every month, in the long run they’ll actually increase your credit score.

One last point to consider is that some credit card issuers have rules about how often you can apply for new credit cards and still get approved or be eligible for the bonus. MileValue has a great article summarizing these rules, but they can be a hassle to keep track of in your head.

That’s one of the reasons we built Pointwise - so that you don’t have to think about any of these rules - you can just follow the onboarding process and figure out which credit card is best for you right now, and we’ll also let you know when it’s best for you to get your next card.

Myth 4: Having Too Many Credit Cards Hurts Your Credit Score

This makes sense if you’ve been raised to believe that credit cards are inherently bad, but to the credit bureaus, there’s no such thing as having too many credit cards, so long as you pay them off in full every month.

Having a lot of credit cards without any balances shows the credit bureaus that you can manage credit very well and that you don’t need it that badly, all signs of a low risk borrower!

Myth 5: You Only Need to Pay the Minimum Payment

You have no idea how many people I come across who think their credit limit is their bank account balance and the minimum payment is their bill.

This could not be further from the truth. Your credit limit is a number that should not matter to you, and neither should the minimum payment. That’s because your credit cards should be paid off in full, every month, without fail.

If you do only pay the minimum payment, you’ll be sentenced to a life of ever-increasing credit card debt, and you’ll end up paying so much more to the banks than you every paid for your actual expenses.

Credit cards should be paid off in full, every month, and if you can’t do that, you should seriously reconsider if credit cards are for you.

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Editors Note: The opinions expressed in this article are solely the author's and do not reflect the views of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved, or endorsed by any of the organizations mentioned.