Credit Score Myths That Cost Real Money

Credit inquiries come in two types. A hard inquiry occurs when a lender pulls your credit to evaluate a loan or card application — this can temporarily reduce your score by a few points. A soft inquiry occurs when you check your own credit, or when a lender pre-screens you for an offer. Soft inquiries do not affect your score at all, under any scoring model.

This myth keeps many people from monitoring their own credit, which is actually a financially healthy habit. You can check your reports at AnnualCreditReport.com at no cost. If you spot an error, the dispute process is a separate matter entirely — see our guide on common credit file errors and how to dispute them.

Your credit utilization ratio — the percentage of your available revolving credit that you're currently using — is one of the most heavily weighted factors in scoring models. When you close a card, you eliminate that card's credit limit from your total available credit. If you're carrying balances on other cards, your utilization ratio rises immediately.

Age of accounts also factors into your score. Closing your oldest card shortens your credit history, which can have a modest negative effect over time. In most cases, keeping old accounts open and occasionally using them for small purchases is the better strategy. Learn more about how this ratio works in our explainer on credit utilization and how it shapes your score.

This myth likely originated as a misunderstanding of how credit activity gets reported. What matters to scoring models is that you use your credit — not that you carry debt. Paying your statement balance in full each month still shows activity, demonstrates responsible use, and avoids interest entirely.

Carrying a balance from month to month means paying interest at your card's APR, which can easily exceed 20% annually for many cardholders. That's a real cost with no credit-score benefit. The habit of paying in full, by contrast, supports long-term credit health without any of the expense.

Credit scores — including the widely used FICO and VantageScore models — are built from data in your credit file. That data covers payment history, amounts owed, length of credit history, credit mix, and new credit. Income does not appear in your credit report and plays no direct role in score calculations.

Someone earning a high salary but with missed payments and maxed-out cards will score lower than a modest earner with consistent, on-time payments and low utilization. Income matters for loan approval decisions, but it does so separately from the score. For a full breakdown of how each scoring factor is weighted, see Credit Scores Decoded.

Both FICO and VantageScore models include a rate-shopping allowance. Multiple hard inquiries for mortgage, auto, or student loan products made within a specific window — generally 14 to 45 days depending on the model version — are consolidated and treated as a single inquiry. This allows consumers to compare lenders without being penalized for being informed.

The practical takeaway: don't skip comparison shopping out of fear of score damage. Applying to several mortgage lenders in a focused window is a financially sound approach, and the scoring impact is minimal or nil. This myth costs people real money when it causes them to accept the first offer rather than seeking better terms.