If you’re reading this, chances are you have a credit score. And chances are you’re probably very misinformed about what influences that score. A new study from Bankrate.com finds that most Americans have misconceptions about their credit scores, and that knowledge gap has the potential to cost us big.
For instance, 13% of people think it helps if you have a short credit history. In reality, longer is better. Just over half of Americans think it actually helps your score if you have high balances on your credit cards and make your payments on time. Only 22% of people know the right answer — that getting close to your credit limit can drag your score down, even if you’ve never made a late payment. Only 30% know that having just a single credit account is also bad for your score; lenders like to see that you can handle a variety of loan and credit types.
Bankrate found that 4% of people even think that having an unpaid account sent to a collections agency actually helps your score, and another 12% think it doesn’t make a difference. In reality, that’s the kind of negative activity that can drag down your score and make it more expensive for you to borrow money. The number of people who think this mistake helps your score was nearly twice as high among people with only a high school education and among those who earn less than $30,000 a year.
More than a third of respondents also flunked when they were asked if paying a credit card bill more than 30 days late would generate a “black mark” on their credit file. (It will, but if it’s your first time ever dropping the ball on a payment, you might be able to convince the issuer to remove the negative notation if you call and ask nicely.)
Another common—and expensive—mistake is thinking that carrying balances on your credit cards will help your score, which more than half of respondents think you either need to do or don’t know if you should do or not. While having a balance won’t necessarily hurt your score, provided you’re not using too much of your available credit, it’s an expensive misconception because you’re paying an average of 15% in interest to revolve that debt month after month—money you don’t need to pay in order to improve your credit score. Even a third of people who earn more than $75,000 a year as well as a third of college-educated respondents have this misconception, proving that America’s collective credit-score ignorance is surprisingly pervasive.