If you are planning to avail loan of any kind, you must have been told about the importance of keeping your credit score high. Credit scores typically range from 300 to 850, and having higher scores helps to reassure potential lenders and creditors about your creditworthiness when evaluating your loan application. It is your credit score, amongst other factors, that help lenders determine whether you qualify for a loan or credit card and on what terms including your interest rate. Considering the importance of credit score in getting a loan at better interest rates, it’s critical to understand how your actions may or may not affect your credit scores. Here are common myths about credit that you should avoid if you want to improve your credit score.
Checking your credit reports or scores will lower your credit score: False
If you are wondering if I “check my credit score”, will it go down, you can be rest assured that nothing of that sort will happen. There are many websites that say Check free credit score where you can see your credit score. Checking your credit reports or scores has no effect on your credit scores. In fact, it may be a good idea to check them on a regular basis. Doing so can help you understand what potential lenders and creditors will see if you apply for credit, and regularly tracking credit scores can help you understand your overall credit situation, especially if you’re planning to make a large purchase like a car or a home.
Having a credit card but not using it can improve your credit score: False
This is determined by a variety of factors, including whether you have a credit card balance or not. If you pay it off, it may help lower your debt-to-credit ratio, which is the amount of credit you’re using in relation to the total amount available to you. Furthermore, if you have been using a credit card for a very long time, it can help help you show a longer credit history to the lender. Credit scores are typically calculated using both your debt-to-credit ratio and the length of your credit history and it is highly recommended that you Check free credit score using any credible portal.
But there is a catch. If your credit card isn’t used on a regular basis, your credit card company may close the account for inactivity after a certain period of time, which can have a negative impact on your credit score. Using your credit card for small purchases and then paying the balance in full each month, on the other hand, will encourage positive payment behaviour and keep the card “active.” Closing a credit card account can also have an effect on your credit score.
Your credit scores will not be affected if you apply for a new credit card quite frequently: True
This is usually true. Applying for a credit card usually results in a hard inquiry on your credit reports, which can have an impact on your credit score. It is best to only apply for the credit that you require and if you are wondering whether should I check my credit score or not, you should definitely check it before applying.
Carrying a small balance on your credit cards is a good idea: True
Carrying a small balance on your credit card can have a number of consequences. One, you will almost certainly pay interest on the cards if you do not pay them off each month. Also, do you recall your debt-to-credit ratio? Lenders and creditors prefer a low debt-to-credit ratio of less than 30%. If your credit card balances are increasing, your debt-to-credit ratio may be increasing as well.
There is nothing you can do about inaccurate or incomplete credit report information: False
I “check my credit score” and I noticed an error but is there anything I can do about it? Consider contacting the lender if you notice inaccurate or incomplete account-related information on your credit reports. You might be able to resolve the issue with the company directly, and the company will then report the updated information to the credit bureaus. Lenders and creditors who report inaccurate or incomplete information must update it with each bureau to which they report. You can also file a free dispute with the credit bureau or bureaus that reported the information on your credit report.
Marriage Combines Credit Scores: False
If you’ve agreed to marry and believe that your spouse’s good credit will improve yours as well whenever next you will check my credit score, think again! Credit scoring agencies view you and your partner as two separate entities with separate credit histories. Unless you open joint accounts or make financial decisions together, the chances of your credit score being harmed are slim. In situations such as a mortgage, where both partners’ credit scores are checked, it may be an issue if one of you does not have a good score.
Debit Cards Improve Credit Scores: False
Regardless of how prudently you manage your debit account, it will have no effect on your credit score when you check free credit score using different portals. Debit cards allow you to use money from your own bank account rather than borrowing it from a financial institution such as a bank or lender. Furthermore, the bank does not report debit card transactions to credit reporting agencies. Using a debit card to pay your phone bills or college fees will not help you build or improve your credit score.
No debt equals a high credit score: False
While you don’t have to go into debt to improve your credit score, having no debt on your credit report won’t help either. Moneylenders look at your credit history to see how well you manage your finances, and having a zero score won’t help. To build good credit without going into debt, use at least one credit method, but use it wisely, and pay on time. Allow your account to mature and become a credible source in order to improve your credit score.
So what we are saying is,
In general, higher credit scores result in more favourable loan terms and lower interest rates. Understanding what will and will not help credit scores is a good first step.