If you're not sure why credit scores matter -- especially if you've sworn off credit cards forever or have no desire to borrow a penny -- be sure to read Part One of this post where I cover Credit Score Lies #1-7.
Part One explains why having bad credit handicaps your entire financial life. Low credit scores sentence you to paying more for debt -- like car loans, mortgages, and credit cards -- and they also cause you to overpay common expenses, miss out on certain benefits, and even make less money than you should.
If you're clueless about what's on your credit report, it's also easy to get duped by an identity thief. None of us can stay completely safe and prevent identity theft, but checking your credit on a regular basis may be the only way to know if you've become a victim of this rapidly growing crime.
To monitor your credit report and get your credit score for free, click here for a video tutorial.
What you don't know about credit can hurt your personal finances on many levels. So here are seven more lies about credit scores that you should never fall for:
Lie #8: Every payment you make appears on your credit report.
The data in your credit file comes from companies who report information to the nationwide credit agencies. If you make payments to merchants who don't report payment information -- like an owner-landlord or a small business -- those transactions don't appear in your credit history.
Additionally, for a payment to be reported on your credit file, the account must be in your name. So, if you help out a friend by making his or her debt payments, your good deed won't be reflected in your credit history.
Lie #9: You can't get a negative item removed from your credit report.
If you have bad marks in your credit file, it is possible to have them removed. There's no law preventing you from pleading your case and politely asking the company that reported negative information to remove it from your credit report.
If what's on your credit report is factually accurate, creditors and merchants are under no obligation to remove it; however, if you've been a loyal customer they may consider it. It won't always work -- but it never hurts to ask for what you want and to be persistent about improving your credit!
Lie #10: You need to open many credit accounts to build a good credit score.
One of the variables that credit scoring models use is the number of new credit inquiries on your credit file. Each time you submit a credit application, it results in a hard inquiry on your report -- even if you don't end up opening an account or borrowing any money.
Numerous inquiries are a red flag that you may be desperate for credit and are a potentially risky customer. To raise your credit score, keep new credit inquiries to a minimum and be sure to space them out over several months.
Lie #11: Shopping around for the best interest rate hurts your credit score.
Now that you know having too many credit inquiries can damage your credit, here's the exception: Most credit scoring models are sophisticated enough to recognize when you're rate-shopping for similar products over a short period of time, like a few weeks.
For instance, if you apply for several different loans to refinance your mortgage at the lowest possible interest rate, the inquiries may be ignored or only counted as a single inquiry. That will result in little or no change to your credit score.
Lie #12: Reducing credit limits on credit cards will raise your credit scores.
A major factor used in calculating your credit score is the amount of debt you owe compared to your total credit limits. This debt-to-credit ratio is called your utilization rate, and it should always be kept below 25 to 30 percent.
Lowering your credit limits may help you rein in credit card spending, but it will also lower your credit score. Having the same amount of debt and a reduced credit limit increases your utilization rate and makes you appear less credit-worthy.
Lie #13: Declaring bankruptcy erases account history from your credit report.
If you cancel a credit card or pay off a loan, the status of the account changes from "open" to "closed" and remains on your credit file for up to decade. If there's negative information on an account, it remains on your credit report for seven years from the date you officially became delinquent.
Declaring bankruptcy frees you from having to pay some or all of your debt, but it doesn't erase a past due account from your credit report. The status is updated to show "included in bankruptcy." A Chapter 13 bankruptcy remains on your credit history for seven years and Chapter 7 is reported for 10 years.
Lie #14: Carrying a balance on a credit card helps build your credit score.
Using credit cards responsibly is one of the best ways to improve your credit score. But never carry a balance from month to month unless you absolutely have to. Making charges that you pay off in full each month will build your credit score -- without costing you a penny!
Read "7 Credit Scores That Cost You Money" for Lies #1-7.
Laura Adams is a personal finance expert and host of the popular Money Girl podcast on the Quick and Dirty Tips network and iTunes. She's the author of the award-winning book, "Money Girl's Smart Moves to Grow Rich."
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