Five credit-score myths that are quietly costing people money

The credit score is one of the most consequential numbers in American adult life — it influences mortgages, car loans, rental applications, sometimes job offers — and it's also one of the least clearly explained. Most of what people "know" about their score comes from forwarded advice, half-remembered Reddit threads, and the well-meaning instincts of parents who learned the rules in a different decade.

Some of that advice is fine. A surprising amount of it is wrong in ways that are quietly costing people real money. This piece walks through the five most common myths I've seen — and what's actually true.

Myth 1: "Checking your score lowers it"

This is the single most-repeated piece of bad advice in personal finance. It is also wrong. The confusion comes from the difference between two kinds of credit inquiries.

A soft inquiry is when you (or a service like Credit Karma, or your bank's app) checks your score. Soft inquiries are not visible to lenders and do not affect your score. You can check your score every day for the rest of your life and the number will be unchanged.

A hard inquiry is when a lender checks your score because you've applied for new credit — a new card, a car loan, a mortgage. Hard inquiries do show up, and they ding your score by a small amount (typically 5–10 points), and they fade away over about a year.

The practical takeaway: check your score whenever you want. Don't apply for credit you don't need. The two activities are completely different things, despite a generation of advice that treated them as the same.

Myth 2: "Carrying a small balance helps your score"

Genuinely false, and it's costing people interest payments for no benefit at all.

The score formula does not reward you for carrying a balance. It rewards you for using credit and paying it back on time. A card you use for groceries and pay in full every month is exactly as good for your score as a card you use for groceries and pay 95% of the balance, leaving a small interest-bearing rump.

The "carry a small balance" myth comes from a real but very narrow situation: if your statement closes with a balance, the credit bureau sees that you used the card. If you pay off the card before the statement closes, you might get a $0 reported balance — which is rare, but in some cases registers as the card being inactive. The fix isn't to carry a balance. It's just to use the card occasionally and pay it off after the statement closes.

In every realistic case, "carry a small balance" means "pay interest for nothing." Stop doing it.

Myth 3: "Closing an old card I don't use is good housekeeping"

This is the myth that has cost the people I know the most points, fastest, with the least benefit.

Two things happen when you close an old credit card.

First, your average age of accounts drops, because you've removed your oldest tradeline from the calculation. This matters more than people realise — about 15% of a FICO score is tied to credit history length.

Second, your credit utilisation ratio jumps. Utilisation is the percentage of your available credit you're using. If you have $20,000 of available credit across three cards and you carry a $2,000 balance, your utilisation is 10%. If you close one of those cards and the available credit drops to $13,000, that same $2,000 is now 15.4% utilisation — and your score drops accordingly.

The instinct to "tidy up" your finances by closing old cards is sympathetic. It's also one of the easiest ways to lose 30–50 points overnight. Unless the card has an annual fee you're not getting value from, leave it open. Use it for a small charge once a quarter so the issuer doesn't close it for inactivity. That's the entire job.

Myth 4: "More cards = worse score"

Mostly the opposite, with one caveat.

Each new card you open creates a brief score dip from the hard inquiry and the lower average account age. Within about a year, both effects fade. What stays is additional available credit, which lowers your utilisation ratio, which is good for your score.

So the long-term effect of opening a card is positive. The short-term effect is negative. The myth comes from people who have only ever observed the short-term effect.

The caveat: opening many cards in a short period — say, four or five within six months — creates a different signal. Lenders read that pattern as "this person is in a hurry to find credit," and your score drops more than the sum of individual inquiries would suggest. The advice is "don't open cards in clusters," not "don't open cards."

The actual right pattern, for most people: open a new card every couple of years, keep it forever, never close anything that isn't actively costing you money.

Myth 5: "Paying off a collection makes the collection go away"

It does not.

A collection that has been reported to the bureaus stays on your credit report for seven years from the date of the original delinquency, regardless of whether you pay it. Paying it changes the collection's status from "unpaid" to "paid" — which is meaningfully better and influences how lenders interpret your file — but the collection itself stays visible.

The right move depends on the situation:

• If the collection is genuinely yours and recent, paying it (or settling for a discounted "pay for delete" agreement, where the collector agrees in writing to remove the item from your report) is usually worth doing.
• If the collection is older and close to the seven-year mark, paying it can sometimes re-age the entry in the bureaus' systems, restarting the visible clock. This is the opposite of what you want.
• If the collection isn't actually yours — wrong person, identity theft, debt that's past the statute of limitations — the right move is to dispute it, not pay it.

The general lesson is that the credit-collection space is the one place where doing nothing is sometimes correct. Talk to a non-profit credit counsellor before paying anything older than four years.

What actually moves your score

For the people who want a single answer to "what should I focus on": the two things that move your score the most, by a wide margin, are on-time payments (about 35% of FICO) and utilisation (about 30%). Everything else combined is the remaining 35%.

Translation: pay every bill on time, every month, and keep your utilisation under 30% (ideally under 10%). Do that consistently for two years and your score will land in a place that opens almost every door you'd want it to. Everything else is fine-tuning.

The reason credit-score advice has gone sideways for so long is that the fine-tuning is interesting and the boring two-thing answer isn't. The boring answer is the right one.

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MoneyPatrol is not a financial, tax, investment, legal or accounting advisor. This article is for general educational purposes only and is not a substitute for personalised advice from a qualified professional. See our full disclaimer.