Credit Myths: True or False?

By Mike Peterson
In August 23, 2012

Get the facts with this quick credit-score quiz!

 If you’re like most people, you probably think you know what’s true and what’s not when it comes to your credit score – but even the most financially savvy folks can hold misconceptions about credit.  And with good reason:  With so much information (and misinformation) out there, it’s not surprising that the lines between what’s true and what isn’t can get a little blurry.

For example, does getting turned down for a credit card hurt your credit score?  Can using a debit card help your credit score go up?  Is it bad to check your own credit report?

Find out the answers to these common credit card questions as you test your knowledge with this quick true or false quiz!

1. True or False:  Your credit report is the same as your credit score.

 False.  Your credit report and your credit score are actually two different things.  Your credit report contains information about your credit use and activity.  Your credit report might include information about credit card payments (including any late or missed payments); the ratio of your available credit to the amount of credit you’re actually using; and other credit-related activity, such as applying for new credit account.

The information in your credit report is used to create your three-digit credit score, which is the number that lenders use to determine how likely you are to repay (or not repay) your debts.

Everyone is entitled to a free credit report from the three major reporting bureaus (Experian, TransUnion, and Equifax) every year – but those reports won’t contain an actual credit score.

And while we’re on the subject of free credit reports . . .

2.  True or False:  All three credit reporting bureaus have exactly the same information about you and your credit activity, so there’s no reason to look at all three.

False.  Although, in theory, it makes sense that TransUnion, Experian, and Equifax should all have the same information about your credit activity on file, it rarely happens that way.  A credit card lender might report an inquiry or a missed or late payment to one bureau but not all three, for example.   Or, one report might contain an error.

Bottom line?  Don’t assume that all three of your credit reports are going to be the same.  Look at them every year, and pay special attention to any differences you see.

3.  True or False:  Getting turned down for a credit card will hurt your credit score.

False . . . sort of.  You probably know that when you apply for a new credit card, a new inquiry shows up on your credit card.  And, you probably also know that each new inquiry lowers your credit score a tiny bit.  So, any time you apply for new credit, your credit score goes down a little bit.

Here’s where it gets a little more complicated, though:  If you’re approved for that new credit card, your credit score actually might go up quite a bit.  That new line of credit means that you now have more available credit at your disposal — and the more unused, available credit you have, the higher your credit score.

But if the prospective lender turns down your application, your credit score isn’t affected either way (beyond the initial inquiry, of course).

4. True or False:  Checking your own credit report can be good for your credit score.

True.  While an inquiry from a prospective credit card lender will lower your credit score slightly (see question #3 above), checking your own credit report isn’t harmful.  In fact, checking your own credit report might actually help raise your credit score – you might find an error or evidence of fraudulent activity.   When it comes to your credit, what you don’t know can hurt you – don’t be afraid of checking your credit report.

5.  True or False:  Responsible debit card use can help boost your credit score.

False.  Your debit card might say “Visa” or “Mastercard” – but that’s where the similarities to a credit card end.  Your debit card is tied directly to your bank account, and that means that no matter how long you’ve been a responsible debit card user, your credit score won’t be affected either way.  If you’re looking for a way to boost your credit score, focus on paying down your existing debt and making your payments on time.

So, how many questions did you get right?  Did any of these answers surprise you?  Have you learned any surprising credit card lessons recently?  Leave a comment and let me know.

Mike is the author of “Reality Millionaire: Proven Tips to Retire Rich” and he has been published in a variety of local and national publications including Entrepreneur Magazine, Deseret Morning News, LDS Living Magazine, and Physicians Money Digest. He holds a B.S. in business administration from the University of Phoenix.

Click "More" for important American Credit Foundation client transition information