Click below to listen to our Consumerpedia podcast episode on credit myths and credit facts.

You need good credit to get a loan or credit card with the lowest interest rates, to rent an apartment, or sign up for cable or cell phone service. In most states, insurance companies use credit scores as one of the most important factors when calculating the premiums their customers pay. And potential employers often run credit checks before deciding to hire.

Although good credit is important for so many reasons, many people don’t understand how the system works and instead make decisions based on misinformation, according to a NerdWallet survey of more than 2,000 Americans.

Checkbook asked Liz Weston, a personal finance columnist for NerdWallet and author of the best-selling book, Your Credit Score, to separate myths from facts.

Myth 1: Your credit report includes your credit score.

Most Americans (82 percent in the NerdWallet survey) thought this was true. Credit reports and credit scores are two different things. Your credit report is information collected by a credit bureau. Credit scores are three-digit numbers generated using a variety of algorithms used by lenders, based on the information they obtain from your credit reports.

“You don’t just have one credit score,” Weston noted. “You have many, and they change all the time, and you can't necessarily predict in advance which one a lender or landlord is going to use.”

The two most widely used scoring models, FICO and VantageScore, typically range from 300 to 850. Scores above 720 are generally considered excellent, those between 690 and 719 are good, and anything below 630 puts you in the poor credit range. Having a score below 630 could make it difficult or impossible to get a credit card or auto loan. If you are approved, you’ll be charged a significantly higher interest rate. You may also be required to provide a sizeable deposit to get cable or wireless service.

Aside from basic information about where you live and where you work, your credit files include:

  • Credit accounts: how many and what types—credit card, mortgage, etc.
  • How much you owe and how much credit you have per account and in total.
  • Your payment history: Do you pay on time, late, or miss payments?

Credit reports do not include your marital status, medical information, buying habits or transactional data, bank account balances, criminal records, or level of education—although lenders and other businesses can buy much of those data about you elsewhere.

Myth 2: Checking your own score can cause it to drop.

Checking your own score will not hurt your score. In fact, it’s a good practice that can help you keep your financial life on track.

Applying for credit will lower your score, but it’s usually by only five points or less.

“You should not let concerns about applying for credit hurting your score prevent you from getting the credit that you do need,” Weston said.

On the other hand, don't apply for credit you don't need, and don’t apply for a bunch of credit at once, which could have a bigger impact.

Don’t worry about shopping around for the best rates and terms for mortgages or auto loans. The algorithms that create credit scores don’t penalize you for making multiple applications with several lenders within a reasonable timeframe. Weston suggests doing that comparison shopping within a couple of weeks.

Myth 3: Carrying a small balance on a credit card is better than paying it off in full each month for good credit scores

Nearly half of the survey respondents (47 percent) believe this costly misconception.

The credit bureaus, and therefore the credit scoring formulas, typically don't know whether you pay your balance in full, so carrying a balance cannot improve your scores.

The better thing to do: Pay your bill in full each month so you don’t pay interest.

“If you have a bunch of balances on a bunch on different cards, that can hurt your score,” Weston explained. “You don't want to be carrying these balances for financial reasons—they don't do you any good. And you don't want to carry a bunch of balances or use a bunch of credit cards because that could be hurting your score, as well.”

You do need to use credit responsibly to have good credit scores. Paying with cash or using a debit card may help you stick to your budget, but it’s not credit—and therefore won’t be reported to the credit bureaus—so, it will not help you build a good credit file. Simply having a credit card, even if you don’t use it, is good for your scores.

Note: So far, most Buy Now, Pay Later lenders do not report to the credit bureaus, unless you miss a payment. This is likely to change.

Myth 4: Closing a credit card you no longer use can help your credit scores.

“Closing cards can't help your credit scores, and it could hurt them,” Weston warned. That’s because you lose the credit limit associated with that card.

One of the key factors used to generate credit scores, other than payment history, is what’s called “credit utilization”—how much of your available credit you’re using. When you close a card, your utilization rate goes up.

For example, if you have a total credit limit on all your credit cards of $10,000, and you charged a combined total of $2,000 on those cards, your utilization rate is 20 percent. Cancel one of those cards with a $2,000 credit limit, and your utilization instantly jumps to 40 percent, even though you didn’t charge any more. That could hurt your scores.

“The less of your credit limit you use, the better it is for your scores,” Weston said. “Less than 30 percent is good, less than 20 percent is better, and less than 10 percent is best.”

This doesn't mean you never should close a card. If you have one you never use and it has an annual fee, you might want to close it. Just don’t do that before applying for any other type of credit, such as a mortgage (or refinance), or auto loan.

Closing a card will not purge negative information, such as a history of late payments, from your credit report. That information will become less important over time—up to seven years, in most cases.

Keep track of your credit for free.

It’s a good idea to keep track of at least one of your scores and monitor it over time because that will alert you if there's a problem.

“If you see a big drop in your credit score, you know that you might have missed a payment or been the victim of identity theft,” Weston explained. “It gives you early warning of problems, but also you can see how your credit score reacts to different things over time.”

Many banks and credit card lenders provide credit scores for free. In some cases, it might be the FICO score, the most widely used scoring formula. Personal finance sites, such as NerdWallet, offer Vantage Scores, a competing service.

You can also get a free copy of your credit report to look for any errors that could be dragging down your scores. Go to to request a free copy from the big three credit bureaus, Equifax, Experian, and TransUnion. Don’t search for “free credit reports” because you have no idea where you might wind up.

By law, you are entitled to one free copy of your credit file from each bureau every 12 months, but because of the pandemic, the three bureaus will let you request a copy once a week until the end of 2022. Unless there’s a problem, there’s no reason to check it more than once or twice a year, but the option is there.

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Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He is also the consumer reporter for NW Newsradio in Seattle. You can also find him on Facebook, Twitter, and at