Busting Debt Myths: Seven Common Misconceptions

By Mike Peterson
In January 24, 2014

Is it possible to “inherit” debt?  What happens to your credit score if you pay off a decades-old debt?  Are debt collectors obligated to listen when you ask them to stop calling you?

Debt is a complicated topic, and there’s a ton of information – and misinformation – out there related to debt, credit, and debt collection practices.  But how do you separate the real facts from the half-truths?  As you can probably imagine, I’ve heard my share of credit card myths and misinformation.  And while I can’t promise to dispel every single credit-card myth out there, I thought I’d use this month’s blog post to address a few of the most common ones.

Read on for the truth about seven common credit myths.


1.  Closing a credit card will improve your credit score.   I understand how this has become a common myth.  After all, if large amounts of credit card debt equal a low credit score, it’s reasonable to assume that reducing the amount of credit cards you have would lead to a higher credit score.  The problem?  Credit scores don’t quite work that way.  As it turns out, the total number of credit cards you have is not nearly as important as the ratio of available credit vs. credit used.  Closing an account reduces your available credit, which can actually hurt your credit score, especially if you’re carrying any debt.


2.  If a family member dies, you can be held responsible for his or her debt.  Not true – unless, of course, you have a shared credit card, a mortgage, or a car payment in both of your names.  A deceased person’s debts are typically paid out of his or her estate – not passed on to surviving family members. 


3.  All debts seven years or older are automatically removed from your credit history.  Or, all debts remain on your credit report indefinitely.  You’ve probably heard one or both of these myths before, and although they are contradictory, they are both equally widespread, and the answers are a bit complicated. 


In the case of the “seven year” myth, that really depends on the type of debt:  Things like late payments and old collections activity are typically removed after seven years (provided there hasn’t been any activity on the accounts).  On the other hand, if you have a debt that’s, say, 10 years old and you’re still actively paying on it, that debt and all recent activity will still show up on your credit report. 


As far as debts that stay on your report indefinitely, some situations can remain on your credit report for much longer than seven years.  Bankruptcy, for example, can remain on your report for 10 years, and student loans essentially stay with you for life. 


See what I mean? It’s complicated.  Really, the best advice I can give you is, if you have questions about a specific debt or situation, contact a financial advisor.  Every situation is different.  Sometimes, time is a factor.  Sometimes, it’s not. 


4.  Agreeing to pay a small amount will get debt collectors to leave you alone.  It’s become fairly common for “debt buyers” to purchase companies’ old debts (also known as “zombie debt”) and try to collect on them.  And they often use dishonest tactics to try to get people to pay up or, at the very least, acknowledge the old debt.  Once you do that – even if the statute of limitations has passed – you are basically rolling back the clock on that old debt, and you can be held liable for paying it back.  If confronted by zombie debt, the best thing to do is refuse to discuss the issue.  Demand to see documentation of your debt, and don’t acknowledge or agree to anything on the phone.


For a more detailed discussion “zombie debt,” check out this post.


5.  Debt collectors have to stop calling you if you tell them to stop.  Technically, this is true – but it’s a little more complicated than simply saying, “Stop calling me.”  To get debt collectors to leave you alone, you have to make it official and put it in writing. 

And, while we’re on the subject of phone calls:  Did you know that it’s illegal for debt collectors to discuss your debt with family/friends/coworkers?  Technically, they can call around and ask for information like your phone number or address (if they don’t have that information) — but they aren’t permitted to discuss the reason for the call.  So you shouldn’t have to worry about people finding out about your debts.


6.  If your state’s statute of limitations is past, collectors can’t sue you.  While this is technically true, some less-than-honest debt collectors will try to take you to court in an attempt to get you to pay old debts.  If a debt collector tries to sue you for an old debt, you should appear in court – with proof that your debt is you’re your state’s statute of limitations.  Not sure about your state?  Here’s a state-by-state guide.


7.  Checking your credit report/score hurts your credit.  No.  Not true.  At all.  For some reason, this is one of the most enduring pieces of debt-related misinformation out there.  I’ve touched on this before, but since I still hear it from time to time, I think it’s worth bringing up again.


Here’s the deal:  There are two types of credit checks.  The first type is called a “hard” inquiry. A hard inquiry is what happens any time you apply for a credit card or make a large purchase (like a car or a home).  This type of inquiry can potentially “ding” your credit score – but not by much.  In fact, hard inquiries are really only a problem if you’re applying for multiple lines of credit or financing lots of big purchases in a relatively short amount of time.  The second type of credit check is called a “soft” inquiry. Checking your own credit report/score is considered a soft inquiry – and although soft inquiries can show up on your credit report, they don’t affect your score in any way.


So, there you go: The real story about a few of the most common credit and debt myths out there.  Hope that helps clear up some confusion.  The more you know about debt and credit, the easier it is to take charge of your financial future.


Happy saving!


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.

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