So much bad advice floats around about credit scores, and it often hurts people’s finances instead of helping. If you don’t get how your credit score works, you’re at a disadvantage, especially for veterans getting back to civilian life, where that number affects everything from getting an apartment to landing a job.
Key Takeaways
- Paying your bills on time is the single biggest piece of the puzzle, making up a huge 35% of your FICO score.
- How much of your available credit you’re actually using is 30% of your score. The standard advice is to keep that utilization number under 30%.
- Think before you apply for new credit because the hard inquiries and the hit to your average account age can cause a temporary dip in your score.
- You need to pull your reports from all three major bureaus (Experian, Equifax, and TransUnion) regularly to find and fix errors that could be dragging down your score.
Myth 1: Checking Your Credit Score Lowers It
This is probably the myth I hear most often. People are terrified to check their own score because they think it’ll drop, which is just wrong. It all comes down to a “soft inquiry” versus a “hard inquiry.” When you pull your own score on a site like myFICO or get it from a bureau, that’s a soft inquiry. Lenders can’t even see these, so they have zero effect on your credit score. You could check it every day and it wouldn’t matter. A hard inquiry, on the other hand, happens when a lender pulls your credit because you’ve applied for something new, a mortgage, a car loan, a credit card. That does cause a small, temporary dip. According to the Consumer Financial Protection Bureau (CFPB), one hard inquiry might knock off fewer than five points, and that damage fades in a few months. The real problem is a bunch of hard inquiries in a short time, which makes you look desperate to lenders. Applying for five credit cards in two weeks looks bad. On the other hand, most scoring models know people shop around for big loans, so they’ll bundle all your mortgage inquiries within a 45-day window and treat them as a single hit. Knowing the difference lets you monitor your own finances without fear.
Myth 2: Carrying a Balance on Your Credit Card Helps Your Score
This one is just bad, dangerous advice that gets people into debt for no reason. The idea is that by carrying a balance, you’re showing you use credit, which supposedly helps your score. The best thing you can do for your score and your bank account is to pay your credit card off, in full, every single month. Your payment history is the biggest chunk of your FICO score at 35%, and consistently paying on time and in full is what shows you’re responsible. The part people get confused about is your credit utilization ratio, the amount of credit you’re using compared to your total limit, which accounts for 30% of your FICO score. You want to keep this low. Below 30% is the common rule of thumb. For example, a $500 balance on a card with a $10,000 limit is a nice, low 5% utilization. But let that balance climb to $5,000, and your utilization shoots to 50%, which will absolutely tank your score. Use your card, but pay it off. The goal is to show you can manage credit, not that you can hold debt.
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Myth 3: Closing Old Credit Cards Is Good for Your Score
People think closing old, unused credit cards is just good housekeeping, that it tidies up their finances and removes temptation. It usually does the exact opposite to your credit score, especially with accounts you’ve had forever. The length of your credit history is 15% of your FICO score, and older accounts are gold because they show a long track record of your behavior. When you close an old card, you’re not just shortening the average age of your accounts. You’re also immediately shrinking your total available credit. This can make your credit utilization ratio spike, even if you haven’t spent an extra dime. Imagine you have two cards with $5,000 limits each, and a $1,000 balance on one. Your total credit is $10,000 and your utilization is a healthy 10% ($1,000/$10,000). If you close that empty card, your total credit is now just $5,000, and your utilization instantly doubles to 20% ($1,000/$5,000). That jump can ding your score. Unless an old card has a crazy annual fee, it’s often best to just leave it open. Think twice before closing that ancient store card.
Myth 4: You Only Have One Credit Score
It’s a huge misunderstanding that you have one single, universal credit score. In reality, you have dozens. While FICO is the big one, FICO’s official site says about 90% of top lenders use their scores, there’s also VantageScore and a bunch of others. On top of that, each of the three main credit bureaus (Experian, Equifax, and TransUnion) has its own data on you, so a score from Experian might be different from Equifax’s based on the information they have. Why the difference? Creditors might not report to all three bureaus, or they might update at different times. The scoring models themselves can also weigh things differently. A FICO Bankcard Score 8, for instance, is tweaked for credit card lenders and will look at your card usage differently than a FICO Auto Score 8, which is tuned for car loans. You don’t have one number. You have a range of scores, and lenders pick the one that’s relevant to the product you’re applying for. That’s why you have to check your reports from all three bureaus, an error on just one of them could get you denied for a specific loan.
“Mitchell Barnes, founder and chief executive of Ryse 3D, which manufactures 3D parts for the defence and automotive sectors, said the "reality" of rising interest rates was to look at the cost of employees and people.”
Myth 5: Paying Off Collections Automatically Deletes Them from Your Report
A lot of people hope that if they just pay off an old collection account, it will get wiped from their credit report and the damage will be undone. It doesn’t work that way. A collection account, paid or not, can legally stick on your credit report for up to seven years from when the original account first went delinquent, as outlined by the Fair Credit Reporting Act (FCRA). But paying it is still the right move. A “paid collection” on your report looks a whole lot better to a lender than an “unpaid collection,” even though both are still there. Sometimes, you can negotiate a “pay-for-delete” with the collection agency, where they agree to remove the item from your report entirely once you pay them. This is the best-case scenario, but it’s not something they have to offer. If you do get them to agree, you absolutely must get that promise in writing before you send a single penny. Without that written agreement, there’s no guarantee the collection will be removed. If you can’t get a pay-for-delete, paying the debt still stops the collection calls and shows you’re taking responsibility.
Myth 6: You Need to Go Into Debt to Build Good Credit
The idea that you have to be in debt to build good credit is completely flawed. Building a strong credit score is about showing you can handle financial agreements responsibly, not about how much debt you can rack up. You can build an amazing credit history without ever paying a dime in interest. How? Just use a credit card for normal purchases you’d make anyway, gas, groceries, your phone bill, and then pay the balance off in full and on time every month. This activity gets reported, building your payment history while keeping your credit utilization ratio near zero. For someone just starting out, a secured credit card is a great tool. You put down a cash deposit that becomes your credit limit, and your responsible payments help build your history. Some services even let you report rent and utility payments now, giving you another way to build a file without taking on traditional debt. The point is to prove you’re a good risk. Getting a handle on these credit factors means cutting through the bad advice, which lets you make choices that actually improve your credit score and secure your financial future.
What’s considered a good credit score?
A FICO score of 670 to 739 is generally considered good. Anything from 740 to 799 is very good, and 800 to 850 is exceptional. Lenders save their best interest rates and terms for people in those top two brackets.
How often do I need to check my credit report?
You can and should get a free credit report from each of the big three bureaus (Experian, Equifax, and TransUnion) every year at AnnualCreditReport.com. A good system is to pull one report every four months, rotating between the three, so you’re constantly monitoring for errors or fraud.
Will paying off a loan early hurt my credit score?
Paying a loan off early almost never hurts your score. It’s a good thing, it lowers your overall debt and improves your debt-to-income ratio. The only, very minor, potential downside is that it might reduce your “credit mix,” which is a small part of the scoring formula. The benefit of being out of debt far outweighs that tiny effect.
How long does building a good credit score take?
Building a good credit score is a long-term game. You can get a score generated within about six months of opening your first account, but getting into the “good” or “excellent” range often takes several years of consistent, on-time payments, low credit card balances, and a healthy mix of account types. It requires patience and discipline.
Will shopping for a mortgage or car loan hurt my score?
When you’re shopping for a big loan like a mortgage or car loan, the scoring models are designed to let you shop around for the best rate. Multiple hard inquiries for the same type of loan are typically grouped together and treated as a single inquiry as long as they happen within a short period (usually 14 to 45 days, depending on the model).
