According to a NerdWallet survey, 40% of us believe that carrying a small balance will help our credit score (it won’t) and 52% don’t aware that having terrible credit increases the amount of money required for utility deposits (it does!).
There are a lot of misconceptions and fallacies about credit scores.” It’s up to you to learn this material because it’s not taught anywhere else. When you’re in the market for a home, the last thing you want to learn is that your credit is in bad shape.
If you don’t have us digging for you. Listed below are seven of the most common credit score myths, together with the truth behind each one.
Myth #1: You should always keep a small amount on your credit card to avoid incurring interest charges.
A good credit score is based on your ability to make timely payments on your debts and avoid using up all of your available credit.
And, of course, your credit card bill is one of the things they want you to pay in full. The only thing that goes up when you have a running balance is the interest you are due.
Myth #2: If you pay off your credit cards in full, you can pay them a day late.
Your credit score will suffer the most if you miss a payment. As many as 100 points can be deducted from your credit score if you miss a payment on your student loans. Obviously, you’re not any smarter because of that degree!
To have the best possible credit score, always pay your installment payments on time and in full, such as car loans and mortgages. You know, just like you should. However, keep in mind that financial institutions employ real people; if you need to pay late for a legitimate reason, phone your lender before the due date and have an open discussion. They’ll frequently lend a hand.
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Myth #3: Closing old credit cards will remove any unfavorable records.
We wouldn’t be driving Teslas if it were that simple. Even if you don’t use your credit card for seven years, your information will be kept on file by credit reporting companies.
When it comes to improving your credit score, the longer you’ve been responsible with a credit card, the better it is. Your credit score is directly correlated to how much credit you use. When you cancel a credit card, that percentage goes down.
Myth #4: If you’ve never had any debt, your credit score will be excellent.
Reality: There’s no need to hold off on using your credit cards until you find the perfect gift. Nobody knows how well you’ll handle using credit if you’ve never done it before. There isn’t enough information in your credit report for a credit score, which is what credit reporting firms refer to as a “thin file.” To get started, get a little credit card or loan, and start adding to your credit file.
Myth #5: Frequent monitoring of your credit score is detrimental to your score.
Keeping track of the damn thing is a need. Yes, a few “hard” checks by corporations can take a few points off your score. When applying for a loan or line of credit, such as a mortgage or a credit card, hard checks are more common.
Performing a “soft” check, where you check your answers, does not affect your score.
A minimum of once a year, look through your credit score and history. The best way to keep track of your credit score is to use a banking app. Unexpected drops in your credit scores could be an indication of identity theft or inaccuracies on your credit report (and keep hard checks to one or two a year).
Myth #6: Early repayment of a student loan or a car loan can harm your score.
Reality: Oh no, I’m afraid not. If you pay off your debts early, credit reporting agencies will not penalize you. They may even stage a float-filled street party for you. In reality, this isn’t the case. Remove the princess wave from your wardrobe. Paying off your installment loans is a better option than simply keeping up with the payments.
Myth #7: Your age, sex, and other non-financial factors have an impact on your credit score.
What century is it now, anyway? Non-credit concerns including race, color, national origin, and gender are all protected under federal law. No matter what you say, credit card companies and lenders are not allowed to reject your credit because of the information you provide to them. What matters are your earnings, expenses, obligations, and credit history?
Myth #8: Getting a job might be made easier or more difficult depending on my credit score.
Depending on the nature of your work, this may or may not be true. Since a security clearance or business credit card will be required for this, an employer will be interested in learning about your credit history and whether you’re in such a financial jam that you’re bribed easily. Although the employer will ask for your consent before doing this, it’s not considered a hard pull and will not harm your credit score