What you don’t know about credit scores can cost you — big time.  Poor financial knowledge of how credit works can hurt you for years, especially if you don’t understand what helps and hinders your creditworthiness. The following are the top 5 credit myths you should always avoid, or your credit will see a drastic decline.

1. When you pay your credit cards off you should close them.

This credit myth recommends closing old accounts after you pay them off. But instead, once you finish paying off the account, put the card away, and don’t use it. Paying off all debt is one of the fastest ways to improve credit scores. Closing accounts, though, can hurt credit scores. One of the most important elements in credit scores is the proportion of total balances to the total credit limits.

2. If I check my credit my score will drop

This myth, makes people believe that every time they check their own score— their credit score drops. This is not the case. When you check your own score, there is no impact on your score. However, if a lender checks your score, it has some impact—usually 5 points or less.

3. Paying off your credit will increase your score by 50 points

Because of the complex algorithm of credit reporting, I can say this is simply untrue. There are hundreds of factors that go into determining your score. However, it’s wise to pay your bills on time, work to lower your debts, and make sure any inaccuracies are removed, or corrected.

4. If I don’t use credit cards my score will be great

Another myth to chalk up to inaccurate information. Not using credit cards means your credit score has a ratio of zero (meaning you have no debt at all). This may actually hurt your score, since it doesn’t demonstrate that you can use your credit responsibly. Your credit utilization ratio is calculated for all of your cards both individually and cumulatively. Having a high ratio on a single card could cause a red flag, the cumulative utilization carries a bit more weight.

5. Your credit score and report are the same

A credit report is just that, a report on your credit. Each report lists relevant information regarding your accounts. Each report contains personal information, open and closed accounts, credit inquiries, public records and others. There are 3 major credit bureaus, TransUnion, Equifax, and Experian. Each credit bureau will have their own corresponding report. Your Credit score is different and may appear different on each credit bureau.

A credit score is a three-digit number between 300-850, your score provides information regarding your history of credit usage, on time payments, and availability of credit. Credit scores are important because of loan approvals, and interest rates offered. Credit scores are what lenders use to determine your eligibility. If you focus more on having good credit habits, none of these myths should impact your score in the slightest.

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