Four Myths About Credit Scores
Credit scores are essential for financial success, as lenders will use this figure to determine what terms and rate to offer on all loans – mortgages, personal lines of credit, auto loans. That being said, it is important to have a vast knowledge about this number, so people don’t do anything to damage their rating.
However, there are many common myths about credit scores, such as:
Myth No. 1 – Checking a credit report damages scores
In order for consumers to be sure they haven’t been a victim of identity theft or to keep an eye on their rating, it is important to get a copy of their credit report at least once a year, but many people don’t do this because they fear it will hurt their score. This couldn’t be further from the truth though, as checking this document will never impact a person’s credit rating. Someone getting their own report will not lead to a hard inquiry, however, having a friend at a bank or car dealership could cause a score to drop a bit.
Myth No. 2 – Carrying a balance is essential to having good scores
While it can certainly be beneficial to have some debt on a credit card, it isn’t required to have a solid credit score. The best method of attack is to use plastic monthly and then pay it all off at the end of the billing cycle, as this shows credit bureaus that people are responsible with their cards. Having a balance can actually be detrimental in certain instances, as interest can accrue and make it much more expensive to pay down.
Myth No. 3 – Paying my debts automatically improves scores
One of the best ways to better a credit score is to pay down all debt, but that doesn’t mean people will see their rating go up instantly. A credit report takes into account a history of accounts, so the missed payment a few months ago will not be forgotten just because someone has eliminated their debt.
Myth No. 4 – Canceling credit cards boosts scores
After paying down a lot of debt, it may be tempting to cut up and cancel a credit card, but this should be avoided. Not only will people not improve their rating by doing this, they may actually hurt it. This eliminates some of their credit limit, which can increase their utilization ratio, potentially lowering a score.
Jessica Williams is Consolidated Credit’s Marketing Communications New Media Coordinator. As a member of the education team, Jessica focuses on helping consumers make better financial decisions while living debt-free. She has previously worked with Take Stock In Children, where she was a mentor and communications specialist, and SouthPromo.com, where she managed community relations, event planning, marketing, and public relations. Jessica attended both the University of Florida and the University of Central Florida where she received her B.S. in Interpersonal/Organizational Communications and Marketing. Connect with Jessica on Google+.