It’s possible to improve your credit score, but it’s difficult to know where to start. There is a lot of misleading information out there, and these credit misunderstandings can prevent your credit score from improving. Your credit score is important in determining whether you qualify for a loan or credit card benefit and the interest rate you will pay. A good credit score gives you more options in your financial journey. It’s important to feel confident when managing your credit, so here are some of the most common credit misconceptions.
Myth: Checking my credit report will affect my credit score.
Reality: Getting a free annual credit report doesn’t affect your credit score and can be an important tool in making sure your information is accurate and up-to-date.
Requesting a free annual credit report or purchasing a credit report will not affect your credit score. You can and should receive a free credit report from AnnualCreditReport.com every 12 months. Regularly checking your credit report will help you quickly identify and correct any incorrect information.
Myth: I have only one credit score.
Reality: You have different credit scores.
There are a variety of credit scores available to you and lenders. Often, the score you see is not the same as the lender’s score. Your score will depend on the credit reporting company that provided the information used to calculate your score, your scoring model, the type of loan you are seeking and the date it was calculated. Therefore, it is normal to see slightly different numbers from different sources throughout the year. Many credit card companies and other companies have started giving people free access to their credit scores. This list features companies that offer free credit scores to existing credit card customers.
Myth: Getting loan reviews from multiple lenders will negatively affect my score.
Reality: Getting a loan and comparing loan offers can help you find the best terms, and for some loan types, borrowing for a short period of time won’t have a significant impact on your score.
Comparing offers before you shop for loans and credit cards can help you find the best deal for your needs. Buying a credit card, car loan or mortgage means it costs less in the long run because it’s it takes time to find the best rates and terms. For many people, a credit report or multiple inquiries on it can have a negative impact on their score, and the benefits of shopping around can be significant. In addition, purchasing all taxes in a short period of time can minimize any negative impact.
For some types of credit, such as auto loans and mortgages, if a lender offering the same type of credit requests your credit score within 14 to 45 days, it only counts as one request. The duration depends on the type of loan you are looking for. Once this period applies, the benefits of shopping around for the best deal far outweigh the impact on your credit score.
Myth: Maintaining credit card balances will improve your credit score.
Fact: Paying off your credit cards in full each month is the best way to improve your credit score or maintain a good credit rating.
Part of your credit score depends on how much credit you have and how much you use (also called your credit utilization ratio). You can calculate the ratio by dividing your total credit card balance by your credit limit. A low credit utilization rate (less than 30%) indicates that lenders are responsible and have access to credit. It’s best to pay off your balance in full and keep your ratio low. This will strengthen your credit score. Carrying a balance on your credit cards can mean spending more money on the things you buy because you’re paying interest.
Closing your credit card accounts can help you manage your spending and protect against identity theft if you don’t use your accounts. While this may be reasonable depending on your financial situation, don’t assume it will improve your credit score. Part of your credit score depends on your credit utilization rate. Try to keep your credit utilization under 30%. If you close multiple credit card accounts but keep the balances the same, you may use a higher percentage of your total credit limit, which can lower your score.
If you plan to close your account, adjust your spending to avoid high credit utilization (or pay off existing balances faster). If you decide to keep unused credit accounts open, monitor your statements to prevent identity theft and check for any unexpected charges.
Myth: A credit repair company can pay for itself quickly.
Reality: Only time and good credit management can remove negative information from your credit report. You can’t rush the process and neither can a credit repair company.
Any person or company that advertises price quick fixes may be scamming you. If all the information on your credit report is correct, there is no way to improve your credit score quickly. If you want to improve your credit, check out our guide to building a strong credit score.
To improve your credit rating:
- Pay your loan on time
- Keep your credit low
- Check your credit report and dispute any errors.
- Only apply for the loans you absolutely need
- If you are looking for outside help, contact a credit counselor.
