Having a good credit score is important, even vital, especially if you want to borrow money. Thats elementary. It doesnt make any difference what your intentions are, or what your hopes are, without a good credit rating youre not going to be able to borrow money at reasonable rates. In order to have a good credit score you need to do certain things to get it high and keep it there. Unfortunately, there is a lot of misinformation on the subject. Following are a few myths about credit scores that need to be squashed.
Paying Off Credit Cards Monthly
Most people assume that simply because they pay off their credit card balances each month their credit score will automatically be high. But staying current on a credit card, while not a bad practice, isnt all that a credit score is based on. Your credit score has a lot of determining factors. Simply paying your credit card in full may actually damage your credit score, because your credit score depends on how much of your available credit is actually used. If you maintain a zero balance, your credit score may be lower than it could be.
Employment History
If you have an employment history that is stable, meaning you have had the same job for a long period of time, and you earn a good income from it, you may think your credit score should automatically be high. Thats also a myth. Your credit score is determined by how you handle your bills, such as credit card payments, mortgage payments, car payments, and other periodic bills. Simply having a steady, good paying job doesnt have any significant effect.
Keeping Debt Low
Another myth is that not owing a lot of money will give you a good credit score. Not owing money is probably the safest way to avoid going broke, but it wont help your credit score. If you ever do want or need to borrow money, youll be glad you have a good credit score. In order to get a high credit score and keep it that way you need to not only manage your money well, but borrow some once in a while. By making the payments in a timely manner youll increase your credit score.
Frequent Credit Report Checks Harm Your Credit Score
Checking your credit score often used to be a no-no. However, nowadays most credit reporting agencies realize that people who check their credit score often during a brief period of time are shopping for something specific, and they wont penalize you for it.
Credit Counseling Devastates Credit Score
Going to a credit counselor doesnt always negatively impact your credit score. But you need to be careful in how you approach a credit counselors advice. Their job is to straighten out your finances, and they sometimes do that by negotiating a lower payment for you on something you owe. This is good news and bad news. The good news is that you dont have to pay as much as you actually owe, but the bad news is that the information can be taken two different ways by a credit reporting agency. Depending on how it is handled by the creditor it may have no effect on your credit score at all. It would be wise to talk to an accountant to help you determine whether or not using a credit counseling service would be beneficial as far as your credit score is concerned.
Cancelling a Credit Card Will Increase Credit Score
Simply cancelling a credit card will not necessarily increase your credit score. In fact, it could cause it to be lower, because your credit score is not determined by how much money you owe, but on how you pay your bills. If you pay them on time, or early, your credit score may actually go up, so keeping a credit card account open may not be a bad thing.
Paying Bills on Time Increases Credit Score
Paying your bills on time is a good thing. It means you are reliable. But as far as your credit score is concerned it may not be all that gooddepending on how you go about it. Yes, you need to pay your bills on time, but maintaining a continuous line of credit is advisable. Your credit score is determined not only by whether or not you pay your bills, but takes an overall view of how you manage your money.
All Credit Reports Are the Same
Most people assume that all credit reports are the same, but thats not entirely true. There are three major credit reporting companies; Equifax, Experian, and TransUnion. Although they perform the same service, they are completely separate companies. As such there are bound to be differences in the speed in which they post updated information. They gather information individually, which means each company may not have access to the same info at the same time.