Credit score myths aren’t anything new. This is bad financial advice that gets regurgitated every so often without much investigation. But it’s important to scrutinize financial advice — especially if it’s coming from a not-so-reliable source like Aunt Mabel, who swears this is how her third cousin increased his credit score.
Here are some common credit score myths you should look out for — and the advice you should actually take.
Myth No. 1: I Need to Carry a Balance on My Credit Card
I’m not sure where or when this myth originated, but you do not need to carry a balance to build your credit score. In fact, you should actually do your best to pay off your credit card every month.
If you use your credit card automatically, you could rack up a high balance, which means paying interest. It’s best to treat your credit card like a debit card and only use it when you know you can pay off your purchase(s) right away.
This is especially true if you have a rewards credit card. If you’re paying interest every month, you’re not reaping the benefits of a rewards card as you should. Plus, the higher your credit card balance, the higher your credit utilization ratio — and that will hurt your credit score.
[Read: Best Rewards Credit Cards.]
Myth No. 2: An Excellent Credit Score Means You’re Rich
Your credit score is just a determiner for banks and issuers on how much of a risk you are. A good credit score means you’re a good risk; a bad credit score means you’re a bad risk. Simple as that.
Now, does a higher salary help when asking for a credit limit increase? Yes. Which is why it’s important to keep your personal information updated with your issuer. But a high salary doesn’t necessarily equate to a good or excellent credit score.
Myth No. 3: Student Loans Don’t Affect My Credit Score
This is unfortunately not true. Your student loans are money you’ve borrowed, and if you don’t pay them off, they will negatively impact your credit score.
If you default on your student loans, you could be at risk for a number of consequences, such as losing out on federal benefits like repayment plans, deferment and forbearance; having your tax refunds withheld; or even risking a lawsuit by the loan servicer.
If you’re struggling to pay your student loans, there are options available to you. You could try refinancing your student loans, for example. But that course of action comes with its own set of pros and cons.
Myth No. 4: Closing a Credit Card Will Improve My Credit Score
The only time it really makes sense to close a credit card is if you’re being charged an annual fee you can no longer afford or you’ve had the card for less than a year. Anything longer than that and you risk a serious ding on your credit score. This is because your length of credit history accounts for 15% of a FICO credit score. So the longer you have a credit line open, the better for your credit score. Closing a card also reduces your available credit, which increases your credit utilization ratio. Credit utilization is a key factor in the amounts owed category, which accounts for 30% of your FICO score.
If you find yourself not using the credit card in question, put subscriptions on it. For example, I have a Capital One Platinum Credit Card. It doesn’t offer any rewards, but it was the first credit card I applied for when I started working on repairing my credit. It was actually the Capital One Platinum Secured Credit Card before I was able to upgrade to the unsecured Platinum. So I’ve had it for years.
Since it’s now my least rewarding card, I hardly use it — but I don’t want to close it. So I put my monthly subscriptions on it like Spotify and Book of the Month. This way, the card is still being used, and I’m still benefiting from that credit history.
Myth No. 5: Every TikTok Financial Influencer Knows What They’re Talking About
An important rule of thumb will always be if it sounds too good to be true, it probably is. There’s plenty of bad financial advice floating around on TikTok, with finfluencers spouting questionable money moves. Trust me, just because someone has podcast equipment doesn’t mean they’re worth listening to.
Advice I’ve seen on TikTok includes “you don’t have to pay debt collectors,” “you should tip your landlord” and “you can legally write off clothing.” (It’s giving David from Schitt’s Creek.) I promise all of this advice is either illegal or just terrible. Many learned this the hard way when the “Chase money glitch” went viral.
If you’re going to take financial advice from TikTok, make sure the creator you’re following is actually qualified to give advice. For example, some finfluencers I follow are Humphrey Yang (@HumphreyTalks), Tori Dunlap (@HerFirst100K) and Delyanne Barros (@DelyanneTheMoneyCoach). Yang is a former financial advisor, Dunlap wrote a New York Times best-selling book called “Financial Feminist” and Barros is a self-made millionaire who focuses on investing.
[Best Apps for Your Free Credit Score]
Final Thoughts
If you take advice from someone other than a financial advisor (or lil ol’ me), make sure they’re actually qualified to give that advice. Otherwise, you could end up with more than just a ding on your credit report.
More from U.S. News
What Is an Excellent Credit Score?
Federal Student Loan Deferment vs. Forbearance: What’s the Difference?
Should You Refinance Your Student Loans in 2024?
Debunking Common Credit Score Myths originally appeared on usnews.com
Update 09/06/24: This story was previously published at an earlier date and has been updated with new information.
