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No matter how financially secure you are, maintaining a good credit score needs more than a stable paycheck. It requires you to understand the mechanisms of credit score calculation, while also being careful about the factors that boost or lower your credit score.
Figuring out these details can be a bit tricky, but it’s not the hardest thing in the world. To help you master this subject, here’s a guide to busting common credit score myths.
Myth: It’s Okay to Miss a Payment or Two
Despite what self-proclaimed credit experts over the internet might claim, missing a credit card or loan payment is never a good thing for your credit score. That’s why making your payments on time is one of the most important tips for improving your credit score.
Myth: Credit Report is Only For Lenders to Check
Your credit score is determined by the credit report put together by three credit bureaus. However the report that they create is not only for lenders to check. You can get one annual free report or even a weekly free report to check your credit score and report any errors.
Myth: Checking Your Credit Score Lowers It
Speaking of looking into your credit report, there’s also the misconception that checking your credit score affects it negatively. Nothing could be further from the truth: When you check your credit score, it only creates a “soft inquiry” into your report that does not affect your score.
Myth: Paying Off Loans Can Help Boost Your Credit Score
While using a budget planner for managing your finances is good, using your savings to pay off loans doesn’t always work in your credit score’s favor. It’s because when you pay off a loan, it can increase your credit utilization ratio which should be below 30% of all your approved credit.
Myth: Your Oldest Account Drags Down Your Score
Besides the ideal credit utilization ratio, having a higher age for your credit history can also improve your credit score. This is determined by the average age of all of your credit accounts. This means that if you close your oldest account, the action can play a role in lowering your credit score.
Myth: You Need to Carry Forward Your Credit Card Balance
It’s often said that you should carry forward some credit card balance to improve your credit score. This is categorically false. Besides affecting your credit utilization ratio, this also causes you to pay high monthly interest rates. Instead, make it a goal to pay your credit card balances in full.
Myth: Your Rent Payments Automatically Count Towards Your Credit Score
While your landlord may use property management software to collect payments or share maintenance updates, they may not always report your rent payments for your credit report. This means that you need to sign-up for such a service for your rent to count towards your credit score.
Myth: Paying Your Utility Bills on Time Improves Your Credit Score by Default
Similar to your rent, paying your utility bills does not contribute to your credit score on its own. You need to turn to specialized reporting services for this to make a difference. For many people, reporting rent and utility payments can go a long way toward improving their credit score.
Myth: Payday Loans Never Affect Your Credit Score
While finding a loan with bad credit, a payday loan is one of the most common options. But contrary to popular belief, this predatory and expensive loan can also affect your credit score. This can happen when you miss a payment and the loan is sent to collections.
Myth: Credit Repair Companies Can Help Instantly Improve Your Score
When you are trying to improve your credit score, you may often run into credit repair companies. But they cannot boost your credit overnight and it can take at least a few months to see results. This is why you may want to opt for a debt counseling platform that is transparent with its promises.
By learning the truth about these myths, you can stay away from bad practices and improve your finances one step at a time. This can help you achieve a good credit score and reap all the rewards that come with it.
