When it comes to credit scores, there is more misinformation out there than solid fact. Many people think they know all about their credit score, how to improve it and, very importantly, how to protect it. But if you’re making decisions based on bad info, you can wreck your finances. Here’s a look at five credit score myths that can get you in big trouble.
Myth #1 Maxing out cards is okay as long as you make payments on time
Many people think it’s okay to use most or all of the credit limit on their cards so long as they make their payment on time and pay at least the minimum amount due. In fact, credit utilization is an important part of your credit score calculation.
Utilization is the amount of your available credit you’re using. Maxing out your cards can put your utilization at 100% which can mean a major hit to your credit score. Carrying balances month to month can be okay so long as you aren’t carrying more than 30% (but less is better).
Myth #2 One credit card is all you need for a good credit score
Consumers often think that one credit card is enough to keep their credit score in good shape so long as they use it occasionally and pay the bill on time. But a mix of several credit cards may give you better results and more flexibility – so long as you don’t get them all at once.
The age of your average credit is important and helps your score, but getting new credit can also help boost your score. So long as a credit card doesn’t come with an annual fee, occasionally adding cards to your wallet (but not abusing them) can benefit you.
Myth #3 You need to carry a balance month-to-month
It’s a myth that you need to carry a balance to have a good credit score. In fact, paying off your credit card balances in full each month can be much wiser. In fact, paying more than once a month can be smart – if you use your card then pay it down during the month, you may get better results.
Carrying balances can lead to out-of-control debt if those balances constantly rise each month. Sometimes you might need to carry one if you have an urgent need, like a car repair or the replacement of a major appliance. But, as a rule, balances should be avoided.
Myth #4 Closing older accounts or those with higher interest rates is smart
Interest rates on credit cards only matter if you incur interest. With online payment access, you can pay your credit card before the statement cuts and avoid all interest so long as you pay off the balance in full. Avoiding interest is smart no matter what the rate charged.
Closing older accounts is usually not a good idea because it can lower your age of credit file which, in turn, can lower your credit score. A mix of old and new credit may serve you much better. So only close an old account if there’s a really good reason (such as a steep annual fee).
Myth #5 Higher income means a better credit score
While your income may play into a determination to grant you a mortgage or auto loan, your income in and of itself does not affect your credit score one way or another. You can have a higher score on a lower income if you manage your debt and credit cards wisely.
And the reverse can be true. You may earn a high salary, but if you make late payments or carry excessively high credit card balances, you can have a lower score than someone earning drastically less. The credit score calculation does not factor in how much money you have or make.
Credit score after bankruptcy
If you recently filed bankruptcy, rehabilitating your credit score should be a top priority. At Credit Score Keys, we can help you get your credit score back on track after Chapter 7 or Chapter 13 so you can better enjoy the financial fresh start offered by bankruptcy.
Contact Credit Score Keys now for more information about understanding and improving your credit score. Call
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