6 Credit Score Myths That Cause Us Unnecessary Worry.
There’s no denying that our credit score follows us throughout Canada and plays a key role in numerous financial activities, from applying for a mortgage to obtaining a credit card or even a phone plan. Coupled with our lack of knowledge about this issue, we often receive conflicting advice from those around us. While some of it may sound credible and come from a place of good intentions, much of it is intended to instill fear. This is especially true regarding how lenders assess risk. Contrary to what we’ve been led to believe, banks don’t focus solely on the score itself; they also consider income, debt ratios, and payment patterns.
Unfortunately, many of us cling to myths that can lead to poor financial decisions. In this article, let’s set the record straight and focus on what truly matters. Here are 6 credit score myths that Canadians often fear but that lenders don’t prioritize.
Myth 1: “Checking my own score will hurt it.”
No, it will not. When we check our score through Equifax or TransUnion, it counts as a soft inquiry, which does not affect our score. Lenders cannot even see these inquiries. Hard inquiries occur when we apply for credit and may cause a small, temporary dip in our score. Monitoring our score is beneficial as it allows us to catch errors or fraud early.
Myth 2: “Leaving a balance on my credit card or line of credit helps build my score.”
This myth is persistent. Many believe that carrying a small balance while making payments helps improve their credit score. This is incorrect! We do not need to accrue interest in building our credit. Credit scoring models reward consistent, on-time payments. Paying our full statement balance each month shows responsible usage. Carrying debt leads to unnecessary interest charges, while lenders prioritize payment history and utilization ratios. They do not reward us for paying extra interest.
Myth 3: “Closing an old card will help my score.”
While this sounds responsible, it can backfire. Older accounts help lengthen our credit history, which is beneficial. Closing a card may reduce our total available credit, increasing our utilization ratio overnight. Higher utilization can lower our score. Lenders prefer stable, well-managed accounts over frequent closures. If a card has no annual fee and is managed well, it may be smarter to keep it open than to close it without considering the consequences.
Myth 4: “A higher salary would improve my credit score.”
Where does this idea come from? A high salary, while nice, has no bearing on our credit score. Credit bureaus do not include income in their calculations. Lenders may consider income during the application process to assess affordability, but that’s about it. In fact, someone with a lower income can have a higher credit score than someone earning more. The score reflects financial habits, not salary.
Myth 5: “Paying off a loan will instantly raise my score.”
Paying off a car loan or personal loan can feel like a victory, but it does not guarantee an immediate increase in our score. Sometimes it may rise slightly; other times, it may dip. When we close an installment loan, our credit mix changes, and we lose that active account from our report, making our credit profile less diverse. Credit scores are based on patterns over time, not one-time events. Paying off a debt is a smart move, but believing that it will instantly boost your score is a common misconception.
Myth 6: “Declaring bankruptcy means I’m finished!”
Bankruptcy is not something to take lightly, but it doesn’t signify the end of our financial lives. In Canada, bankruptcy remains on our report for a few years before it drops off. During this period, rebuilding is possible. Secured credit cards and small loans can help reestablish a credit history. Lenders consider recent behavior when making decisions, so demonstrating steady employment and consistent payments is crucial. The rebuilding process takes time and patience, but many Canadians qualify for credit again before the bankruptcy record disappears. Lenders focus on current stability, not just past mistakes, when evaluating applications.
Sign-Off: We hope that by revealing the truth behind these myths, we have helped you, in some small way, make more informed decisions about your credit and overall financial health, Insha’Allah. May Allah SWT make it easy for us all, Aameen!
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