Have you ever applied for a car loan, an apartment, or a credit card and felt a sudden knot of anxiety in your stomach? You are not alone. That tiny three-digit number holds an incredible amount of power over your daily life, yet many of us feel like we are playing a game where the rules are constantly changing.
The financial environment has become increasingly tough. Recent data from FICO and Experian shows that the average U.S. FICO Score dropped to 714 in late 2025, down from a record high of 715 in 2024.¹ This is the first annual decline we have seen in the national average credit score since 2013.
What is causing this downward slide? A mix of persistent inflation, rising credit card balances, mortgage delinquencies, and the return of federal student loan payments has put massive pressure on household budgets. Younger consumers are bearing the brunt of this shift, with Gen Z buyers seeing their average score slip to 678.²
In a challenging economic climate, real financial literacy is your best defense. Misconceptions about how credit scores are calculated can lead to costly mistakes, like paying unnecessary interest or accidentally lowering your score. Let's look at the facts and debunk the most stubborn credit myths holding you back.
Myth 1 Checking Your Own Credit Score Hurts It
Have you ever avoided checking your credit score because you were worried it would ding your rating? It is a very common fear. Many people believe that simply looking at their credit profile will cause their score to drop.
The reality is that checking your own credit score is classified as a soft inquiry. Soft inquiries have zero impact on your credit score. They are entirely invisible to lenders, meaning you can check your score daily without losing a single point.
This is different from a hard inquiry. A hard inquiry happens when a lender evaluates your credit because you applied for a loan, a mortgage, or a new credit card. Hard inquiries can temporarily lower your score, usually by just a few points, because they show you are actively looking for new debt.
The Consumer Financial Protection Bureau actively encourages you to monitor your credit report regularly to spot errors or identity theft.³ To make this easy, the three major credit bureaus (Equifax, Experian, and TransUnion) offer free weekly credit reports through AnnualCreditReport.com. Checking your credit is like looking at your speedometer while driving. It is a healthy habit that keeps you safe.
Myth 2 Carrying a Balance Boosts Your Score
This is one of the most expensive misunderstandings in personal finance. Have you heard the advice that keeping a small balance on your credit card from month to month shows lenders you can manage debt?
It is completely untrue. Carrying a balance does not improve your score. It only does one thing: it costs you money in interest payments.
Your credit score is heavily influenced by your credit utilization ratio, which is the percentage of your available credit you are currently using. This ratio accounts for 30% of your total FICO Score. When you carry a balance, you keep your utilization ratio higher than it needs to be.
Credit expert Michelle Black points out that even if you pay your bill every month, a high balance on the day the credit bureau pulls your data can drag your score down. Financial experts recommend keeping your overall credit utilization below 30%, and ideally closer to 10%, to get the most from your score. Paying your balance in full every single month is the smartest way to build credit without paying a penny of interest.
Myth 3 Closing Old Accounts Improves Your Credit
If you have an old credit card sitting in a drawer that you never use, your first instinct might be to close it. It feels like a good way to clean up your financial life. But closing an active account can actually lower your score.
When you close a credit card, you instantly reduce your total available credit. If you have balances on other cards, your overall credit utilization ratio will instantly jump.
Also, closing an old card can eventually shorten your length of credit history. This metric makes up 15% of your FICO Score. Older accounts show lenders that you have a long, stable history of managing credit.
Unless an unused card has a high annual fee, it is usually better to keep it open. To keep the account active and prevent the bank from closing it, put a small recurring charge on it, like a streaming subscription, and set up automatic payments.
Myth 4 Your Income Directly Affects Your Score
It is easy to assume that a big promotion or a six-figure salary will automatically translate to a perfect credit score. But credit bureaus do not actually know how much money you make.
Your income, your salary, and your net worth are not included in your credit report. They have no direct impact on your score. A person making $30,000 a year can have an 850 credit score, while someone making $300,000 can have a 500 score if they consistently miss payments.
Your credit score measures your reliability, not your wealth. It is a record of whether you keep your promises to pay back what you borrow.
Your income does matter when you apply for a loan, but lenders look at it separately. They will evaluate your debt-to-income ratio and your employment history to make sure you have the cash flow to make your payments. But for the credit score itself, payment history is king.
If you want to stay on top of your credit health and build a stronger financial profile, these trusted tools and resources can help you manage your journey.
Taking Control of Your Financial Narrative
Understanding the credit system can feel a lot of, but it becomes much simpler when you focus on the facts. Building a great credit score does not require complex approaches or paying interest to credit card companies. It comes down to a few consistent, daily habits.
To keep your credit on the right track, try to follow this simple checklist
• Monitor your reports: Check your credit report for free at AnnualCreditReport.com to catch errors early.
• Automate your payments: Payment history is 35% of your score, so set up auto-pay for at least the minimum payment to avoid late marks.
• Keep utilization low: Aim to use less than 30% of your limit on any single card.
• Keep old cards open: Maintain your credit age by keeping older, fee-free accounts active.
By taking charge of your credit habits and ignoring the myths, you can build a financial foundation that opens doors to better interest rates, better loans, and true financial freedom.
Sources:
1. Experian Average Credit Score Report
https://www.experian.com/blogs/ask-experian/what-is-the-average-credit-score-in-the-u-s/
2. FICO Credit Insights Report
https://investors.fico.com/news-releases/news-release-details/fico-releases-inaugural-fico-scorer-credit-insights-report
3. Consumer Financial Protection Bureau Blog
https://www.consumerfinance.gov/about-us/blog/
*This article on kolimba.com is for informational and educational purposes only. Readers are encouraged to consult qualified professionals and verify details with official sources before making decisions. This content does not constitute professional advice.*
