Debunking Four Common Credit Myths

The quality of your credit reports and credit scores has become more important than you’ll ever know. Your credit reports and credit scores can impact a loan or credit card application, a job application, a new insurance policy, and even a new utility account. As a result, learning how to earn and maintain great credit should be at the top of your financial to-do list.

Unfortunately, misinformation can trip you up on your journey toward better credit, and credit myths abound and spread like wildfire in the internet-connected world in which we live. These myths can actually be very dangerous to your overall financial health, because they may cause you to turn left when you really should have turned right.

Take a look at these four common credit myths below, which you may or may not have heard before, and learn the truth behind each.

Myth #1: Closing credit cards will cause you to lose the value of the age of the account.

This is absolutely incorrect. The truth is that while closing credit card accounts typically is a bad idea when it comes to your credit scores (because you’ll lose the credit limit, which impacts your utilization rate), it’s not because you lose the value of the age of the account in your credit history.

Even closed accounts are still factored into the age-related metrics of both the FICO and VantageScore credit scoring systems. So, a 10-year-old account that you close today is still a 10-year-old account. And, next year at this time it will be an 11-year-old account. As long as the account remains on your credit reports, you will benefit from the then-current age of the account… open or closed.

Myth #2: When you get married, you have to apply for credit jointly.

There is no law or informal requirement that married couples have to apply for credit jointly. In fact, applying for joint credit is typically a bad idea, because it locks two people in as liable parties rather than just one.

Unless you’re applying for a large loan (such as a mortgage), where the income from both you and your spouse is needed to qualify for the financing, it’s always best to maintain credit independence, even after marriage.

In fact, there is no such thing as a joint credit report. There is no such thing as a joint credit score. Both scores and credit reports are maintained and calculated at the individual consumer level, rather than at the family level. So, if you can qualify for a credit card or some sort of loan on the basis of just your income, go for it.

Myth #3: A divorce decree protects your credit.

It should come as no surprise that divorce and credit problems tend to go hand in hand, since the task of separating joint debts and assets can be a very difficult process, even in an amicable separation. Even if your divorce decree assigns responsibility for a joint liability (i.e., a joint auto loan) to your now ex-spouse, that does not mean the creditor will let you off the hook. And, the account will not magically disappear from your credit reports either. Because the lender was not a party to your divorce agreement they will not honor any deals you made with your ex-spouse.

The only way to truly protect your credit in a divorce is to completely eliminate all joint liabilities by refinancing or by selling the asset to a 3rd party in order to pay off the loan. In the case of joint credit cards, it’s best to close these accounts to protect yourself from future charges made by your now ex-spouse. Closing cards is generally not a good idea if you can help it, but in the case of a divorce, it’s the lesser of a variety of future evils.

Myth #4: You have to go into debt to build good credit scores.

This may be one of my least favorite myths. While you do need to use credit to build your credit history, the idea that you need to go into debt or carry a balance to build good credit scores is completely false.

Credit scoring models do not reward consumers for going into debt. In fact, the opposite is true, especially when it comes to credit card debt, which can be extremely damaging to your credit scores.

There is no metric in either the FICO or VantageScore credit scoring systems that actually reward you for carrying debt. It is true that certain debts are worse (revolving, such as credit cards) than others (installment, such as car loans and mortgages), but none of them equates to more credit score points.

So if you are one of those fortunate people who can live debt-free, you won’t need to worry about that negatively impacting your credit scores.

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John Ulzheimer

Contributing Writer

John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. The author of four books on the subject, Ulzheimer has been featured thousands of times over the past decade in media outlets including the Wall Street Journal, NBC Nightly News, The Los Angeles Times, CNBC, and countless others. With professional experience at both Equifax and FICO, Ulzheimer is the only credit expert who actually comes from the credit industry. He has been an expert witness in over 230 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.