There is a lot of misinformation regarding credit scores, and it often causes apprehension when people think about opting for a credit card. When you're trying to rebuild your credit certain misconceptions are often believed to be true which can hurt your credit score rather than improving it. It's important to differentiate myth from fact when it comes to financial matters. We're busting some of these myths to help you make the right decisions in maintaining a good credit history without having to worry about false information.

Myth #1: Don't Get a Credit Card, Only Use Prepaid or Debit Cards

This is a common myth to ward off people from getting credit cards for fear of incurring debt or having a bad credit history. For some people, it might be true who are not used to managing their finances wisely. But a responsible individual who pays on time, and does not max out on his limit can benefit from a credit card because it will build a strong credit history which cannot be established through prepaid debit cards. Lenders use your credit score to analyze how likely you are to pay them back on time. Maintaining a good credit score can help in acquiring loans for housing or other requirements easier than someone who does not have a credit history at all.

Myth #2: Carrying a Balance on Your Credit Card Helps Your Score

This is a terrible myth as people who believe it are more likely to delay payments and incur an unnecessary lower score.

You should pay your credit card bill in full each month, and as soon as you receive it without any delays. If you can’t afford to make the full payment, you should at least pay the minimum on time or consider pre-approved payday loans. Missing a payment even by a day can damage your credit score, and have a negative impact on your credit history. Also, if you maintain a high balance on your credit card by paying the minimal amount each moth, you still lose money by acquiring more interest on your account. You are not rewarded for paying interest on your balance, so it’s not a good idea to carry a high balance in either case. The only two factors that can improve your credit score are paying on time and keeping your use low. Your goal should be to keep the utilization below 30% in order to maintain a good credit history.

Myth #3: Your Score Will Drop If You Check Your Credit

This is again a false myth. Checking your report and score is considered a soft inquiry and does not harm your credit score. Only hard inquiries made from a lender or creditor when you apply for credit can bring your credit score down by a few points. It's always good to keep track of your history and check your score on a bi-annual basis rather than assuming that your credit details are in good shape.

Myth #4: Closing Old Accounts Will Improve Credit Score

Most people think that closing old or inactive accounts will help improve their credit score. However, it actually has the opposite effect, and cancelling an old credit account can lower your credit score because it makes the credit history appear shorter than it actually is. If you want to reduce your level of available credit, have your credit limits reduced rather than closing old accounts.

Myth #5: Once You Pay off a Negative Record, It Is Removed from the Credit Report

Negative records such as bankruptcies or charge-offs remain on the holder’s credit report for 7 to 10 years after the date they are first posted. Paying off the account before the end date doesn’t remove the charges from the credit report, and you cannot rebuild your credit history, however the account gets marked as paid. It's still a good idea to clear your debts as it can slightly improve your credit score. However, the major improvement in credit score occurs after the record has been expired.

Myth #6: Being a Co-Signer Does Not Mean That You Are Responsible for the Account

Unfortunately, when you co-sign on a loan, become an authorized user on someone’s credit card or open a joint account, you are responsible for that account and legal actions can be taken against you if dues are not cleared on time. Any activity on these shared accounts will show up on both people’s credit reports, not just the single person. If you co-sign for a friend’s auto loan, and they do not make the payment on time, your credit profile will be hurt as well by their inability to pay. So be careful when taking on such a responsibility.

Myth #7: Paying off a Debt Will Add 50 Points to the Credit Score

Your credit score is calculated using a complex algorithm, and takes into account many factors. It's hard to predict if a single factor will affect your credit history, and by how many points. For a person with a high credit score, a single late payment can have a huge negative impact. If a person has a low credit score, the drop in score might not be the same. There is no standard way to improve your credit score, and you just have to keep on paying your bills on time and reducing your debts. A good financial behavior will certainly help you improve your credit score.

Myth #8: My Income Will Affect My Credit Score

This is again a false rumor and a misconception. The amount of money you make can only affect your credit score if you do not pay your bills on time. Your income itself has no impact on your credit history and is not listed on your credit reports. It does not contribute to your credit score either.

Myth #9: I Can Never Get a Loan with a Bad Credit Score

This isn’t entirely true. There are plenty of companies which are willing to give loans to people with poor credit scores. However, the loan will most likely incur a higher interest rate, and require you to put up collateral or put money down. Be careful of lenders who use this situation to put a heavy interest rate on your loan. They might lure you into a trap which could put you in more financial stress.

Myth #10: Credit Scores Get Locked in for Six Months

This is not true and your credit score changes as soon as data on your report changes. This could be on a daily or weekly basis depending on when creditors report the information to the credit bureau department. This is why checking your credit report frequently is important.