5 Common Credit Score Myths That Hurt People Every Year

Credit scores are weird. You can do the "right thing" and still watch your score drop. For example, a friend of mine paid off her mortgage early and closed her old credit cards to clean things up -- and her score went down. Strange, right?

Believing the wrong stuff about credit scores can really screw you up. Here are five credit myths that mess people up every single year, and what you actually need to know.

1. Closing old credit cards helps your score

This one feels logical -- but it's usually wrong. That's because of these two major factors that affect your credit score:

• Length of credit history (older is better)
• Credit utilization ratio (lower is better)

When you close an old credit card, you lose that long account history and reduce your total available credit. That means you might end up using a bigger percentage of your remaining credit, which can bring your score down.

Pro tip: If you're not using an old card, keep it open and make a small purchase every few months. If the card has an annual fee, try calling the issuer to downgrade to a no-fee version instead.

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2. Carrying a balance improves your credit score

This myth drives me nuts. Carrying a balance doesn't help your score -- it only means you're paying interest for no reason.

Using credit cards responsibly (paying off your full balance each month) is the smarter move. You'll avoid interest and build solid credit history at the same time.

What matters more with regular usage is your credit utilization ratio, which is how much of your total available credit you're using. This accounts for about 30% of your FICO® Score, and keeping it under 30% (or ideally under 10%) can make a big difference.

3. Checking your score will lower it

This one's actually partially true, but only in specific cases.

• Soft inquiries, like checking your own credit or getting prequalified for a card, won't affect your score at all.
• Hard inquiries, like applying for a credit card or loan, can knock a few points off temporarily.

So yes, applying for multiple cards or loans in a short window can ding your score a bit. But checking your own score, that's actually a smart move. In fact, most rewards credit cards and bank apps offer free monitoring tools -- and I check mine every month.

4. All credit cards are bad news

Used recklessly -- yes, credit cards can be dangerous. People who have spending issues or shopping addictions can get into serious financial trouble.

But used the right way, they're a tool. And a pretty powerful one.

As long as you stick to good habits like paying bills on time, not maxing out cards and keeping spending in check, you'll be just fine.

Do that consistently, and credit cards can actually improve your score, protect your purchases, and even earn you rewards.

5. A high credit limit is risky for your score

This one surprises a lot of people. But having a high limit can actually help your credit score.

That's because lenders don't just look at how much you spend -- they care about how much you could spend but don't.

Say you charge $1,000 on a card with a $5,000 limit. Your utilization ratio will be 20%. But that same charge with a $20,000 limit means your utilization is just 5%.

The lower your overall utilization, the better it looks to credit bureaus. Basically, higher limit cards give you more breathing room and a healthier score.

The bottom line

Credit scores are tricky, and bad info only makes things harder. Studying how scores really work gives you a leg up and keeps you from falling into traps that sound helpful but aren't.

Credit cards aren't good or bad by themselves. They're just tools. Used responsibly, they can help you build your credit, earn rewards, and move closer to your financial goals.

Explore our top-rated credit cards for everyday spending and start making your credit work for you.