The Top 3 Credit Myths That Won’t Go Away

Myths about credit are extremely common, even among people who purport to repair credit. We’ve previously compiled a list of common credit myths, which you can find in our Knowledge Center.

In this post, we’re going to focus on the top three credit myths that just won’t seem to go away, according to credit expert John Ulzheimer. Check out the Credit Countdown video on this topic at the end of this post.

Myth 1: Your revolving utilization ratio is worth 30% of your credit score.

While the general category of how much debt you owe does constitute 30% of your FICO scores, the specific metrics regarding revolving utilization are just part of that category, not the whole thing. There are several other metrics included in this category, which FICO lists on their website. These include:

• The total amount you owe on all of your credit accounts.
• The amounts you owe on different types of accounts, such as installment loans and credit cards.
• The number of your accounts that have balances on them.
• The ratio of how much you still owe to how much you borrowed on your installment accounts, such as auto loans and student loans.

Therefore, your revolving utilization must necessarily be worth less than 30% of your credit scores, although it is true that it is a highly valuable metric.

Myth 2: Closing an old credit card means the age of the card no longer counts toward your credit score.

Prominent sources in the credit arena often advise consumers not to close their oldest credit cards, claiming that this will cause consumers to lose the benefit of the account’s age. In theory, this idea makes sense because your credit age is worth 15% of your credit scores and it is directly connected to your payment history, which is worth an additional 35% of your scores.

However, the problem with this advice is that you actually do not lose the age of a credit card once you close the account. In fact, according to John, credit cards continue to increase in age and contribute to your average age of accounts even after they have been closed.

Still, it is important to remember that closing a credit card is not completely free of consequence. When you close a credit card account, you no longer get the benefit of the unused credit limit that was associated with the account, which was likely helping your credit scores.

Myth 3: Employers can check your credit scores.

In truth, this myth likely exists because employers can check your credit reports, but credit reports and credit scores are not the same thing. Your credit report contains information about your credit accounts, while your credit score is a three-digit number that represents how creditworthy you are deemed to be by the credit scoring model.

Furthermore, the credit reports that employers receive are different from the versions that are provided to lenders, and these credit reports do not come with credit scores.

So you don’t have to worry that an employer will reject you because of your credit scores—although they may take note of negative information that is on your credit reports.

Also, keep in mind that not all employers check credit reports. This is typically reserved for certain types of jobs, and some states have restrictions on hiring credit checks. In addition, according to LendingTree, employers must notify you and get your consent before they check your credit, and they are legally required to tell you if your credit was the reason for denying you a job.

If there are other credit myths you think we should cover, leave a comment on this article or the video on our YouTube channel!

Video: Top 3 Credit Myths That Won’t Go Away