Starting from Scratch: How to Build Credit – Part 3

September 21, 2023

Categories: Budgets, Credit Building, Credit Cards, Credit Score, Education, Financial Goals, Financial Literacy, Financial Planning, Financial Resources, Financial Wellness, Financials 101

Credit Myths

By GreenPath Financial Wellness

Part of the reason that building credit can feel so overwhelming is that there is a lot of conflicting information out there, and some of the information out there is flat out not true. Let’s take a look at a few of the most popular credit myths and why they are not necessarily true.

Myth #1: You must carry a credit card balance from month to month in order to build credit.

One of the most common credit score myths is that you have to carry a credit card balance from month to month in order to build credit. Not only is this not true, but it is a myth that can actually cost you money! When you get your credit card statement every month, there is a statement balance and a minimum payment due. To avoid a late payment, you need to pay at least the minimum payment due by the due date. However, if you only pay the minimum payment and there is a difference between that number and the statement balance, when your next statement cycles you will typically owe interest on the statement balance amount you did not pay. For example, if your statement balance was $50 and your minimum payment due was $20 – if you pay $20, you’ve made your payment obligation BUT when your next statement cycles, you will be charged interest on that $30 difference. If you pay the full $50 statement balance, you will typically not be charged any interest. Some people believe they must only pay that minimum payment and make sure they are carrying a balance into the next month to build credit and that is simply not true. We encourage you to get in the habit of paying off the entire statement balance you owe in full when you get your statement each month – this saves you money on interest charges and will help you keep your balances lower, which improves credit utilization. Remember, credit cards are NOT extra money.

Myth #2: All credit scores are the same – what I see on Credit Karma is what my credit union or bank will see when I apply for credit.

Another myth is that all credit scores are the same. There are two scoring models, FICO and Vantage. Each model determines credit scores differently and the scores are not the same. Scores can vary dramatically so keep that in mind. 90% of conventional mortgage lenders use FICO scores when determining credit worthiness and extending credit. Credit Karma, Credit Sesame, Credit Wise all use the Vantage score. Majority of the time if you are receiving a free credit score it is likely Vantage, unless your financial institution or credit card company provides it to you. You will be able to know what score you are seeing because it will list either Vantage or FICO with the score. Credit Karma might say you have a 710 but when you go apply for an auto loan at your financial institution they might see 660.  If you want an accurate FICO score, most of the time you must pay for it. You can go to the credit bureaus directly or go to

Myth #3: Opening a new credit card every time I get an offer is a good thing for my credit score because you need lots of credit cards to build credit.

While technically having more available credit limits can help improve your credit utilization, this is a dangerous game to play. When you open a new credit card, you have a new hard inquiry and you have a younger account in your length of credit history – both of which can negatively impact your credit score. Also, the more credit cards you have, the trickier it can be to keep track of due dates and make all payments on time, and there is more potential for you to get in over your head with balances spread across multiple cards. While there is no magic number of cards that it best to have, no more than 2 or 3 is typically recommended.

Myth #4: Closing a credit card when I pay it off will improve my credit score.

Some people think after paying off a credit card, they should close it. This can negatively impact your credit score. You will lose the length of history from that card, and it can impact your utilization. Once you open a credit card, it is best to keep open, as long as you are managing the card responsibly.

Myth #5: Checking my credit report will hurt my credit score.

We talked earlier about reviewing your credit report and the differences in credit score monitoring tools. We also talked about how applying for credit leads to a hard inquiry, which can start to negatively impact your credit score, so some people believe that checking your own credit will also hurt your credit score. There are 2 types of credit inquiries: a hard inquiry, which is what a creditor or lender typically will do to dive deep into your credit history and measure their risk level of extending the credit you are requesting. A hard inquiry indicates you have applied for credit and, as we discussed earlier, can start to negatively impact your credit score if done too often. When you check your own credit for educational/monitoring purposes, however, this is what is called a soft inquiry and it does not impact your credit score. It is really important to review your credit reports and keep an eye on your credit score so you can react quickly if you notice fraud or if something just doesn’t seem right. The good news is that you are absolutely free to do this without concern about it impacting your credit score.

In our final part, we’ll discuss health credit habits.

This article is shared by our partners at GreenPath Financial Wellness, a trusted national non-profit.