Credit score myths debunked
Image Source: StockSnap.io
Many people think they understand their credit score, how it’s calculated, and how to improve it, but thanks to a lot of misinformation that’s been perpetuated, their understanding might not be as accurate as they believe. Here’s a look at seven common credit score myths debunked and the truth you should know instead.
#1 You Should Close Credit Card Accounts You Don’t Use
If you started rebuilding your credit with a secured card, as most people do, you might think closing it once you get “real” credit card is a good idea since you don’t need it anymore. However, closing older accounts can damage your score.
An important component of your credit score is your average age of credit. Older accounts are, therefore, of great value. If you close an older account, even if it’s always been in good standing, you’ll likely see your score drop – and this can hurt.
#2 Paying Your Bills on Time Boosts Your Credit Score
Paying your bills on time is one of the best habits to have, particularly if you’re re-establishing your credit. However, unless the creditors to whom you pay the bills report to one of the three credit bureaus, paying on time will not boost your score.
Paying your gas, electric, and water bills on time is great, but won’t help your score. Do know that if you fall behind on an expense that doesn’t report to the bureaus and they turn the account over to collections, then it could wind up as a negative on your credit report.
#3 Paying Your Credit Card Bills on Time Boosts Your Score
Paying your credit card bills on time is essential to maintaining good credit, but depending on how you use your cards, you can pay on time and your credit score can drop. How is that possible? If you pay as required, shouldn’t your score go up?
Not necessarily. Here’s why. If you heavily utilize your credit line, more than 25-30%, your score can drop. If you use more than 50%, it will drop more and if you max out your cards, even if you pay on time, the hit can be worse. Underusing your credit lines is best.
#4 You Only Need One Credit Card to Build Credit
One credit card can be enough to get by with for purposes of renting cars and other activities that require a credit card rather than a debit card. However, having just one credit card won’t help you build your credit card if you want a good FICO score.
Occasionally opening new credit cards will help the portion of your credit score calculation that weighs new credit. It can also help your utilization because having new lines of credit means if you do carry a balance, it will be mitigated by more available credit.
#5 Your Credit Score Can Improve on Its Own
Taking a hands-off approach will not help your credit score. Simply paying your bills on time and keeping the credit cards you have can keep your score at status quo, but, eventually, it will erode some if you don’t keep working at it.
Improving your credit score takes work and it’s not something you can leave alone and expect to get better. There are specific steps you can take to improve your credit score methodically, but doing nothing at all is no help.
#6 You Can Rebuild Your Credit Score Fast
Anyone that promises they can improve your credit score overnight is selling you a lie. It’s impossible to repair or raise your FICO score instantly. However, you can trash your credit score very fast. All it takes is a few mistakes and your score can plummet.
If you max out your credit cards, miss a few payments, have some debts go into collection, your score will drop like a rock. Rebuilding takes time and patience and work. However, if you’re willing to work at it, you can see your score progress every month.
#7 Bankruptcy Ruins Your Credit Score for 10 Years
One of the biggest myths about your credit score is that bankruptcy ruins it for a decade. This myth has persisted because a bankruptcy filing can stay on your credit report for up to 10 years, but that doesn’t mean it will keep dragging down your score.
The longer after your bankruptcy filing, the less the impact will be on your FICO score. For those in financial trouble, bankruptcy can put an end to a credit score free fall and give you a fresh start and a chance to rebuild.
To find out more about improving your credit score after bankruptcy, contact Credit Score Keys. Call 919-495-2365 for a free consultation at our North Carolina office.
