14 Credit Score Myths and Facts You Need to Know

For individuals looking to get a new line of credit or take out a personal loan, there’s one variable that’s considered as the be-all and end-all of getting approved: credit scores. In a way, credit scores are the ultimate factor determining how your application will go. Because of their crucial importance, however, numerous credit myths have surfaced throughout the years – some of which have been widely spread across populations and have been the source of credit score misinformation. Not only have these myths caused misunderstandings in financial institutions, but it has also led to individuals avoiding applying for credit for fear of rejection. In this article, we’ll talk about the most common credit myths and facts today and debunk them with credible information from the finance industry.

Credit Score Myth #1: Checking your credit score will affect your score

One of the most common credit score myths is that once you request a credit report from an accredited credit bureau, you’re basically causing it to drop or be negatively impacted. When you check your own credit, it’s recorded as a soft inquiry, which does not affect your credit score in any way. Soft inquiries are completely harmless and are not visible to lenders reviewing your credit file.

On the other hand, a hard inquiry happens when a lender checks your credit as part of a loan or credit card application. While hard inquiries can cause a small, temporary dip in your score, the effect is minor and short-lived, typically just a few points.

Regularly reviewing your own credit report is actually a smart habit. It helps you verify that your information is accurate and up to date. Spotting errors or outdated negative records early can help improve your chances of getting approved when you do apply for credit.

Credit Score Myth #2: Bad credit lasts forever

If you have a history of bad credit or delinquent payments, chances are these will significantly impact your credit score – especially since credit reports are going to include both your good and bad financial backgrounds. These bad credit histories will stay on your credit report and impact your reliability in the perspective of financial institutions for a significant amount of time. However, contrary to the credit repair myth, this is not permanent.

Remember that credit scores are dynamic and can be influenced by numerous factors. You can expect a poor credit history to last between seven to 10 years – especially if you have a history of bankruptcy. As your credit score recovers, there are numerous ways how to improve your credit score, including reducing the overall amount that you have in loans and repaying revolving credit. It also helps to avoid applying for multiple new lines of credit since these can negatively affect your credit score further.

Credit Score Myth #3: Your bank account balance affects your credit score

While bank accounts play a significant role in every person’s financial freedom and capabilities, your balance does not directly affect your credit score. This misconception might originate from the misunderstanding that all history from formal banking will appear on your credit report. Your banking history, including deposits, withdrawals, and other bank transactions, is typically excluded from credit reports consolidated by credit bureaus – save for a few exemptions.

The rare cases which banks report delinquent bank transactions include bank overdrafts and bouncing checks. For overdrafts, this means that some banks may allow you to complete transactions through overdraft protection, even though you have insufficient funds. This, however, works as a form of credit, so banks will still need to report incidences of bank overdrafts. On the other hand, not only do bouncing checks end up in your credit report, but it can also land you in trouble with the law since it is a legitimate crime.

Credit Score Myth #4: No credit is worse than bad credit

One of the most common impediments that credit applicants encounter when getting loans and mortgages is their lack of credit. With over 53% of Filipino adults being unbanked and underserved, there’s no question that this is a significant problem for both applicants and financial institutions. This common credit myth has also caused individuals to avoid applying for personal loans and credit because of their lack of formal financial background.

However, is being underbanked worse than bad credit? Not entirely. While having no credit history can serve as a deterrent to application approvals, bad credit is much worse since it provides financial institutions with a background on your negative financial habits. From unpaid loans to delinquent payments, financial institutions are more likely to refuse a new line of credit to people who have unreliable financial capabilities. In addition, it’s easier for people who are underbanked to build a good credit score through alternative credit data than for people with a negative credit score to improve it quickly.

Credit Score Myth #5: My educational attainment affects my credit score

Credit scores don’t include your educational attainment or background, which debunks this credit score myth. Credit reports only focus on providing financial data and the most basic information about an applicant, including your name, business, revolving credit, and loans. In fact, it is also illegal for financial institutions to judge an applicant’s credibility and creditworthiness on their educational background. According to the Equal Credit Opportunity Act, financial institutions and creditors are prohibited from using a credit screening system that looks at religion, national origin, age, marital status, and educational attainment.

Credit Score Myth #6: All financial institutions use the same credit score equation

Financial institutions from all over the country do not depend on a singular credit scoring system or equation. While the credit reports that creditors use as a background are typically the same across the board, your credit score may vary from institution to institution. This means that if you get denied by a lending company due to poor credit scores, you can still be approved by another because of varying equations and factors that they may include in their screening.

Additionally, some financial companies also use alternative credit scoring in the Philippines that do not primarily focus on credit history and banking. The rise of alternative credit has helped a lot of financial institutions broaden their approach to credit applications, offering applicants a better chance of being approved even if they have a limited credit history or formal banking background.

Credit Score Myth #7: Paid-off delinquent credit card balances and loans will be removed from my credit score

Another credit score misconception that a lot of people believe is that once you pay off delinquent balances, they’ll be written off or erased from your credit score. Unfortunately, this is not the case since bad credit habits or history can stay on your credit report for years on end, regardless of whether they’ve been paid off or not. While paying them off is a good move, it will not automatically mean that your credit score will quickly recover. This is why it is of utmost importance that you pay your loans, mortgages, and other lines of credit on time.

Credit Score Myth #8: Closing credit accounts helps improve credit scores

This common credit myth is one of the most damaging pieces of misinformation, with individuals observing significant decreases in their credit scores after closing credit accounts with no due reason. If you’re planning on applying for a new credit card or credit account, you might think that closing your current credit lines is the best move. In actuality, this can actually hurt your credit score more since this might hike up your credit utilization ratio, or the percentage of the credit you’re currently using versus the credit that’s available to you.

Credit companies are required to report to credit bureaus every month, so if you close your account with a balance that has more than 30% credit utilization, this can be translated into a credit score decrease. If you’re planning on closing credit accounts, ensure that all your balance is paid off and that you have a lower credit utilization.

Credit Score Myth #9: Credit repair companies can help credit scores fast

Credit repair companies are businesses that can help correct a person’s credit history. Their services typically include removing inaccurate data and erroneous information that can affect your credit score. While there are legitimate credit repair companies around the world, there are also a handful of companies that prey on individuals by proposing scams and promising results that are not achievable.

Credit repair companies generally work by checking credit reports and fixing information, but they cannot fully erase bad credit – which is what this credit repair myth claims. If they find inaccurate data, credit repair companies can submit disputes and handle back-and-forth communication with credit bureaus. If the credit bureau confirms the legitimacy of your claim, the inaccurate financial data will be permanently removed from your report. This process can take up to 6 months, so fast credit score repairs are not at all possible.

Credit Score Myth #10: Maxing out your credit card but paying on time doesn’t affect your credit score

If you have current credit accounts, chances are you’ve thought of maxing out the credit that’s amounted to you by your creditor. You’ve also probably thought that paying on time will cancel out this credit utilization since technically you’re not a delinquent payer. However, because credit scores and credit reports do not entirely revolve around payment history, maxing out credit cards can decrease your credit score due to the credit score utilization rates.

As mentioned above, credit score utilization rates present your spending habits and debt versus the credit that has been allocated to your account. Maxing it out means that you get 100% utilization rates for months on end. This negatively impacts your credit score, especially since ideal credit utilization falls between 0 to 30%. The good news though is that your credit utilization rate doesn’t permanently affect your credit score and may be improved easily by either lowering your debt or raising your credit limit.

Credit Score Myth #11: Carrying a Balance Improves Your Credit Score

Some people think that leaving a small balance on their credit cards each month helps build credit. In reality, carrying a balance doesn’t boost your score. It just costs you money in interest. What truly benefits your score is using credit responsibly: keeping your utilization below 30% and paying bills on time. The best approach? Pay your full balance every month. It demonstrates to lenders that you can manage credit wisely without incurring excessive debt or paying more than necessary.

Credit Score Myth #12: Your Income Affects Your Credit Score

It’s a common misconception that higher income leads to a higher credit score. In truth, your income is not part of your credit score at all. Scoring models focus on how you manage credit, not how much you earn. Lenders may ask about your salary to assess your repayment ability, but it won’t influence your score directly. Even people with modest incomes can have excellent credit if they consistently pay on time and manage their debts responsibly.

Credit Score Myth #13: You Only Have One Credit Score

Many people are surprised to learn they don’t have just one credit score. In fact, you can have multiple scores depending on the credit bureau, scoring model, or type of loan. Some lenders even use industry-specific models for mortgages or auto loans. Other companies also utilize telco credit scoring, allowing them to tap into underbanked communities. That’s why it’s normal to see slightly different numbers when you check your score from different sources.

Credit Score Myth #14: Marriage Merges Your Credit Scores

Getting married doesn’t mean your credit history or score merges with your spouse’s. Each person maintains their own credit file, regardless of their marital status. However, if you open a joint account, co-sign a loan, or become an authorized user, both your credit behaviors can affect that account and future credit applications together. That’s why both partners need to maintain healthy credit habits. Marriage changes many things, but your credit score remains uniquely yours.

Debunking Credit Score Myths Can Translate to Better Financial Literacy

Credit scores play significant roles in helping people achieve financial independence through new lines of credit or loans. Unfortunately, credit score myths and misinformation have impeded a significant percentage of people from pursuing applications altogether. With credit score myths debunked, people can be educated about the importance of having good credit scores. Additionally, financial institutions can promote their services to a wider portion of the population and offer better opportunities through improved financial literacy.

For more information about alternative credit scoring, you can reach out to our team at FinScore, and we’ll help you navigate through the terrain of finance tech.

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