4 common credit score myths
When you apply for a new credit cardYour credit score is important information that banks consider before approving or denying you.
This three-digit number gives lenders a picture of your credit risk; It evaluates the information in your credit report and calculates the likelihood that you will be at least 90 days late in paying your creditors within the next 24 months.
There are many different types of credit scores, but the FICO Score, which ranges from 300 to 850, is the most widely recognized. FICO reports that 90% of top lenders use their credit scores to make lending decisions.
Medium FICO score is 717, according to Latest FICO report.
There are some common misconceptions about improving your credit and therefore your chances of being approved for a new card.
Here are four myths about credit scores.
Your age affects your credit score
You may have heard that age plays a role in determining a person’s credit score. It’s true that a 50-year-old consumer with a long history of on-time payments is more likely to get credit than a 20-year-old consumer who just opened their first credit card. But that doesn’t mean the 50-year-old automatically scores better.
The number of years you’ve lived is not a factor in determining your credit score – the age of the accounts on your credit report is what matters.
Balance will help you stay motivated
Many borrowers believe that carrying a credit card balance is wise from a credit scoring perspective, as it will improve their credit score.
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But carrying a credit card balance won’t help you. In fact, rolling over credit card balances from month to month can hurt your score. Regarding credit scores, customers who pay on time and keep their balances to a low limit (also known as “use credit”) ratio will be rewarded the most.
Cardholders who pay their statement balance in full each month will also save a lot of money on interest.
Closing the card will help you score points
Reducing the number of cards in your wallet may seem wise, but close old card can often be counterproductive. You won’t immediately lower your average credit age when you close the card. A closed account will stay on your credit report for up to 10 years and will continue to age while it’s there. And closing a credit card can cause other problems.
Closing a credit card can increase your overall credit utilization ratio, especially if the account you close has a $0 balance. Essentially, you’re keeping the same outstanding balance but spread across a smaller total credit limit, increasing your utilization. As your credit utilization increases, there’s a risk that your credit score could do the opposite.
In general, you should only close a credit card account if there’s a good reason (such as divorce or a high annual fee on an account that no longer benefits you). Before closing a credit card, it’s best to make sure all your other card balances are paid down to $0 first. Otherwise, closing your account could push your score in the wrong direction.
If you’re seriously considering closing a card, don’t hesitate to call and ask about one Recommend to keep. The issuer may offer you bonus points or a reduced annual fee as an incentive to keep the card open.
Finally, remember that personal credit cards aren’t the only pieces of plastic that can affect your credit score. Small business card can also affect it.
Checking your score will cost you money
In the past, keeping track of your credit reports and scores used to be challenging and often expensive. But now it’s easy to monitor your credit every month.
There are many ways to Check your score for free. You can (and should) download a free copy of all three of your credit reports once a week from AnnualCreditReport.com.
Additionally, many credit card issuers let you check your FICO score through their online accounts – and will even alert you when there are significant changes in your credit report.
Your credit status affects your finances in many ways. Your credit can impact the opening of a great new opportunity rewards cardBut it can also indicate whether you need to start with security card to build or rebuild your credit rating first.
The influence of your credit score goes beyond the world of credit cards. Utility companies, landlords, and insurance companies may use your credit score to assess your risk as a potential customer or renter. If you’re getting a car loan or mortgage, a higher credit score can help you get a more favorable interest rate.
Finally, your credit report (not your score) can even affect your ability to get certain jobs or security clearances.
In short, you should absolutely know where your credit score is at – and checking it will usually cost you nothing.
Bottom line
There are a lot of misconceptions in the world of personal finance, especially as they relate to lines of credit.
So it’s important to make your credit decisions based on facts, not assumptions. This will help you maintain a good credit score – and can ultimately help you save cash the next time you need to borrow money.
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