Credit Myth Busting

Some credit score myths that could hurt you

By now you probably know that keeping your credit score as high as possible can be vital to your financial health. Equally important is knowing exactly what will and won’t likely hurt your score. Like anything kind of complicated, there’s a lot of misinformation out there about credit scores. If you follow the wrong advice, you could end up hurting your score instead of helping it. Here are some myths about your credit score that you should avoid.

Closing Cards Will Up Your Score

The logic behind closing credit cards to boost your score makes sense: If you have less cards, you have less debt. Less debt equals a better score. In reality, it’s not that simple. Closing cards impacts your credit utilization ratio (how much debt you have compared to your credit limit), which can account for about 30 percent of your score. Closing a card means you’ll have less available credit, which in turn increases your credit utilization ratio. If you really want to close a card, choose one of your newer ones with a low credit limit. Older cards are good to keep around because length of credit history is also a factor in calculating credit score.

Not Using a Card Can Boost Your Score

Just as you might think closing cards can help, you might also be thinking that not using a card will boost your score. However, as CNN Money points out, your score is supposed to reflect how much of a risk you are to lenders. If you haven’t used your credit, how are lenders supposed to know if you can handle it responsibly? Instead of ignoring your credit, it’s a good idea to use it responsibly by paying off your bills in full every month. That will show lenders you aren’t a big risk and likely raise your score.

Only Certain Late Payments Matter

Do not fall into the trap of thinking that only some specific late payments matter when it comes to impact on your credit score. Sure, missing your mortgage payment will negatively impact you, but so will missing any kind of payment. If your dentist reports that you missed paying a bill, that could hurt your score. Your best strategy is to treat all bills the same. Pay them off in full — on time — and you’ll be in the clear.

Chris O'Shea

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