Credit Score How Credit Works

5 Common Credit Scoring Myths

Written by John Ulzheimer

Myths and misinformation abound in the world of credit scoring. Here are some of the most common credit scoring myths, and the truth of the matter.

1: Credit scoring used for pre-employment screening

Truth: Credit scores are not and have never been used by employers for employment screening purposes. Employers don’t even have access credit scores.

Credit reports, which are different than credit scores, can be used for employment screening purposes, but only if you provide your overt permission for the report to be accessed.

The idea that credit scores are used by employers stems from the fact that the terms credit report and credit score are often used interchangeably. However, the terms are not interchangeable whatsoever since credit scores and credit reports represent two entirely different products.

Equifax, Trans Union, Experian, and even the credit bureau’s trade association have gone on the record over and over again stating that credit scores are never provided to employers.

There is no doubt that credit scores do wield a lot of power. They can affect your insurance premiums, determine your eligibility for loans, and impact your interest rates on loans. However, credit scores cannot influence an employer’s decision to offer you a job.

2: Spread balances to increase credit score

Truth: Spreading out credit card balances over multiple credit cards can actually have a negative impact upon credit scores. Credit scoring models like FICO and VantageScore use a variety of factors to determine scores.

The second most important metric in credit scoring is debt load, or the amount and type of debt on your credit obligations.

The fewer accounts you have with a balance the better it is for your credit scores. Having a credit card with a zero balance is also very likely to have a positive impact upon your credit scores since cards with zero balances have a debt-to-limit ratio of 0%. The debt-to-limit ratio is a term used to describe the relationship between your credit card balances and your credit card limits.

When it comes to credit card debt the best strategy is to never revolve balances from month to month. However, if you are already in over your head in the credit card debt department then it is best to find an effective way to pay down your credit cards rather than spread out the balances.

If you cannot afford to pay off your credit cards, a consolidation loan might be worth considering, as long as you have the discipline not to charge your credit card balances back up once you have paid them off.

3: You only have 3 credit scores

Truth: Despite what you may have heard or read you have significantly more than three credit scores. You actually have closer to 80 credit scores when you consider all of the different FICO and VantageScore credit scoring models that are commonly used by lender.

FICO alone has some 65 different credit scoring models commercially available from the three credit reporting agencies.

Credit scores exist to predict borrower risk, and different “flavors” of credit scoring models are built to help predict different types of risk. For example, insurance companies rely upon scores to help predict the risk of someone filing a claim. Lenders use credit risk scores to predict the likelihood of a consumer becoming 90 days past due on any account within the next two years.

There are also scoring models that predict the likelihood of a consumer filing bankruptcy, if a consumer will respond to a credit card offer, and the likelihood that you’ll be a profitable borrower. No one has just three credit scores.

4: Value of account age lost when credit card closed

Truth: Closing a credit card account does not cause you to lose the value for the age of the account.

Credit scoring models will still consider the age of closed accounts when calculating your credit score as long as they’re still on your credit report. Closed credit cards even continue to age after they have been closed.

It is certainly possible that closing a credit card will have a negative impact upon your credit scores, but not because closing the card has any effect on the age of the account.

The real reason closing a credit card account might lower your credit scores is because closing the account could possibly increase your debt-to-limit ratio.

The debt-to-limit ratio is the relationship between the balances on your credit cards relative to the credit limits on your open (as in “not closed”) credit cards. When you close a credit card the credit limit on that card will no longer be used to calculate your debt-to-limit ratio. Therefore, when you close a credit card your scores could go down because your debt-to-limit ratio will likely go up. That’s why it’s best to keep your credit card accounts open.

5: Credit scores reward you for debt

Truth: Credit scores significantly reward consumers who do not have any debt, especially consumers with zero credit card debt. And, credit scoring models punish consumers who have too much debt.

The idea that you need to carry a lot of debt to have good credit scores is completely false and is perpetrated by those who either don’t understand credit scoring systems or have a bone to pick with them.

This particular credit myth has become a very popular one due to the fact that many self-proclaimed “financial gurus” on TV and radio like to spread the false idea that you have to be in debt in order to have higher credit scores.

A whopping 30% of the points in FICO and VantageScore credit scores are driven from the amount of debt on credit reports. The fewer accounts you have with balances, the better it will be for your credit scores.  The more debt you have and the more accounts with balances, the lower your scores will be.

About the author

John Ulzheimer


  • I have paid loan for Firstcitizen s bank
    But shows up my credit report change off un paid
    Called the bank couple times they don’t even talk to me
    I have all paper works
    Shoul I go to court or what’s the best option
    It’s damaging my business terribly

    • File a written complaint with all three credit credit bureaus along with copies of of your documentations. Also in the future you should make removing the negative it a condition of paying off the debt.

  • If your comment is “awaiting moderation” it means they are getting ready to strip it from the website as being bad for business. Come back in a week, and you’ll see.
    The whole system from FICO to Credit Repair is designed to keep you ignorant, in debt, and paying fees and interest until your family goes into debt to bury you.
    Remember, figures don’t lie, but liars figure, It’s a huge industry and takes brains and good judgement to avoid. Good Luck.

    • Hi Phil,
      All comments are now being moderated to prevent spam, as we have been inundated with it lately. Comments will be approved within 24 hours during the business week.

      We appreciate your understanding and patience, and thanks as always for your thoughtful insight into our articles!

      • You are simply WRONG good sir…i paid my cc balances down to ZERO and within one week my ficos dropped from EXCELLENT/VERY GOOD/ GOOD ..down to POOR ! I called each bureau and they ALL SAID yes sir thats the way it works…gor instance in order fot me to rrgain my TRANSUNION 777 i need to be at least $5000.00 in debt..a 25% of my debts…Equifax 18% …EXPERIAN 9% !!!!

  • If you use your “rights” under Free Annual credit Report” or whatever the real law is called, you will get what the credit agencies call a “summery” about 3 pages long. This is the minimum they can do under the law because they hate that law, and can avoid any attempt at enforcement by providing it. If you sign up for one of the reporting agencies or FICO’s “good deal” programs for $45.00 or more a year, they will send you a detailed 35 page report of your entire credit history and offer you lost of other “opportunities” to raise your score. On the real report you will likely find some errors you can try to fix, and will probably be able to jump through enough hoops to do so. But your actual FICO and other scores will not go up. The only way to do this is to get into barely manageable debt, make the minimum payments on time and stay there for the rest of your life. Then you are a “good” consumer and probably a fine American. Now the whole system is making money on you. Welcome to the 800 club. It’s easy. And if you fall behind, pay the “credit repair” industry. They will help you get you the “right” level of debt, for an ongoing fee. Pay off your car, credit cards, house and store cards and you sir, are a deadbeat and will be treated accordingly. You’re practically a communist.

  • I had a student loan rep. said he would help eliminate the student loans for $1000.00. I told him that I would have to cut back on my grocery and gas money for going to doctors. He said do what ever it take to pay him to eliminate the loans. At the time my score was 640. I didn’t like his attitude, so he tried to call me ,email me. I just ignored him. One month later my sores dropped to 440. And I have been trying to bring my scores up since then.

  • I read this “Having a credit card with a zero balance is also very likely to have a positive impact upon your credit scores since cards with zero balances have a debt-to-limit ratio of 0%.”

    Here is what happened to me when I dropped my Credit Card balance to zero. Bank of America reported my account as inactive and that dropped my credit score around 6 to 10 points. As soon as I left a balance smaller than 10% on the card my score shot right back up to where it had been prior to paying off the card completely.

    Note, the bank took no time in issuing the “Account Inactive Message” to all 3 credit bureaus. 5 minutes after I transferred the funds to pay the card off to $0.00 I made a small charge of around $35.00 on the same card. I called one of the bureaus and was told it might be removed when the bank sent their next report to them, which it was. That was at the end of the monthly billing cycle around 30 days.

    Everyone most likely will not do things the same as Bank of America did. So I thought I would share my experience with paying off a credit card and the effect on my credit score. 🙂

    • Bank of America I find to be very unethical at many different levels. I paid off my card with them long ago and would never do business with them ever again.

  • I have had my credit scores and reports used against me for employment purposes at a high end employment agency, the position was for IT Administration / Support for a popular Armored Truck company.

    After deep discussion with my recruiter/ headhunter we couldn’t figure out what the hold up was, so we called them on it .. they said point blank I was a credit risk and with access to “armed individuals who were protecting the money ” I may become a liability given that i have a bankruptcy in my past.

    None of the recruiters I have worked with since then have denied , It can be a major factor .

    • I love accuracy and I may have made an error in my prior comment to you. Only certain agencies have to meet the yearly requirement of a free report,

      Not all of the Consumer Specialty Reporting Agencies are required by law to send you a free report every year. The link to the Government site will give you the information on this subject for each agency.

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