Credit myths and misconceptions

Don't let credit myths influence how you manage your credit. Take the time to learn the truth about credit.

Credit myths and misconceptions are everywhere, but don't be fooled from the incorrect information. Read about some of the most common credit myths and how to spot them.

Don't be fooled by most of the stuff you hear about credit. Know the ins and outs of what is real and not.

Myth 1: Your Score Drops Every Time You Check Your Credit

This widespread credit misconception fools a lot of people, but viewing your own report and score is counted as a "soft inquiry" and doesn't change the score one way or another. "Hard inquiries" by a lender or creditor, such as those resulting from your applying for credit, may slightly lower your credit score. If you're shopping for a loan and concerned about harm to your score, know that multiple loan inquiries within a period of a few weeks are usually treated as a single inquiry to minimize impact.

Myth 2: It Helps Your Credit To Close Old Credit Accounts

This credit myth advocates closing old and inactive accounts to hike up your score. However, this might inadvertently have the opposite affect and lower your credit score because now the credit history appears shorter. If you don't trust yourself to put a card away in a safe place and not use it, then consider canceling newer accounts.

It doesn't help your credit to close old credit accounts. Keep them active, and keep a balance of $0 if needed.

Myth 3: Paying Off A Negative Items Means It Is Removed From Your Credit Report

Generally, negative records, such as collection accounts and late payments, will remain on your credit reports for up to seven years from the date of first delinquency. Paying off the account sooner doesn't mean it's deleted from your credit report; instead it's listed as "paid." Of course, it's smart to pay your debts, both to reduce the total amount of debt you owe and to show your willingness to repay your obligations, but expect the negative record to have some effect until it is purged from your report.

Myth 4: Being A Co-Signer Means You Are Not Responsible For The Account

Regardless of this credit myth, if you open an account jointly or co-sign a loan, you will be held legally responsible for the account. Activity on the joint account is displayed on the credit reports of both account holders. If you co-sign for a friend's auto loan and that person doesn't make the payments, your credit profile will be hurt and vice versa. The only way to end the dual liability is to have one party refinance the loan, or persuade the creditor to formally take you off the account.

Myth 5: Paying Off A Debt Will Boost Your Score By 50 Points

Contrary to this credit myth, credit reporting agencies companies determine your credit score via a complex algorithm that uses hundreds of factors and values to calculate it. It's almost impossible to calculate the difference in points changing one factor might make. It's wise to pay your bills on time, work to lower your debts and ask that any inaccuracies be corrected. A proven record of sound financial behavior and time will have the most significant impact on your score.