Many Americans believe a lot of myths about their credit scores. Here is a list of those myths that need to be debunked immediately. Credit score myths don’t only pertain to what can negatively affect your credit score. They also pertain to what actions can maintain it or improve it. So here is a list of the top 10 myths about credit scores.
1. Paying Bills on Time is All There Is
Of course, paying your bills on time is one of the best ways to build your credit score. However, that’s not all you have to do. You will need to keep your credit 30% of your maximum limit. You will also need to keep debt low and keep your credit limit low, if you can help it.
2. Higher Balances Boost Your Credit Score
Keeping a balance on your credit card all the time shows that you spend quite a lot. This signals financial irresponsibility. It harms your credit score, it doesn’t improve it. It actually racks up interest charges.
3. Closing Old Credit Cards with High Interest Rates Will Help Your Score
Closing old credit cards can actually hurt your credit score. This is because it brings down your total credit limit. Hence, it will affect the percentage of the limit you’ve already used. If it brings that limit up beyond 30%, your credit score will go down.
4. New Retail Cards are Great for Your Score
The overall average of your credit takes a hit if you open a new retail card. Keeping one or two credit cards for all your purchases is the best way to proceed.
5. Comparison Shopping Hurts Your Credit Score
Think about this. How can credit queries from lenders hurt YOUR score? Shopping around for the best price is actually one of the best financial practices. However, do know that any hard inquiries that lenders make for your credit history will affect your score.
6. Older Unpaid Debt Hurts More
As debt ages, except for bankruptcies, their impact diminishes. The decisions you make now and the debt that you accrue recently will affect your credit score much more. This is vital information for how to build credit with a credit card.
7. Selecting Credit While Using Your Debit Card Improves Your Score
Credit type purchases on your debit card won’t affect your credit score one way or another. This is because banks don’t typically report any debit card activity to credit reporting companies.
8. Credit Reports are Always Accurate
Turns out, they’re not. That’s why you are encouraged to look at your credit reports to report errors. If you do so, your credit score can actually improve.
9. Checking Your Report Will Hurt Your Score
How this became a myth, we may never find out. A lot of consumers think that a soft inquiry and a hard inquiry are similar. The former is when you inquire about your credit history. The latter is when a financial firm requires that you reveal your credit history for a loan application.
The hard inquiries which are needed for a loan or to setup a new credit card will hurt your score. However, when you make a soft inquiry, your credit score will not take a hit.
10. There is Only One Credit Score
There are a lot of different scoring models out there. Consumers could have dozens of credit scores depending on who’s doing the calculation. Lenders, credit unions, banks, etc. all have their own formulas. They give different weights to different factors; evaluate different purchases and loans differently. Hence, don’t be secure in the belief that one credit score will define what kind of loans you can get.
So don’t believe these myths. They will not only mislead you but will also damage your credit score.
Article Submitted By Community Writer