Your credit score is very important in today’s society and you cannot just assume that if you pay your bills on time that you will have a good credit score. Here are six myths about how these scores are calculated and what you need to do to ensure good credit:
- Myth #1 – Paying bills on time ensures I have a high credit score. Having no late payments on your credit only accounts for about a third of your total score with the rest being based upon the amount of debt owed, recently opened accounts, and types of credit.
- Myth #2 – Consolidating cards with increase my score. This does make your bills easier to pay but if consolidation causes you to get close to your maximum available credit then it will hurt your score. The rule-of-thumb is keep multiple accounts open, keeping payments up-to-tdate and maintain balances around 30% of available credit.
- Myth #3 – Having no credit cards or major debt will give you a high score. Your credit score only looks at one thing: credit. Your income or net worth have no bearing on your credit score.
- Myth #4 – Closing a credit card is better than keeping it open. In the long term this may hurt your score because you lose the long term credit history for that lender.
- Myth #5 – Shopping around for credit with hurt my score. A large number of credit inquires can hurt your score because they indicate the potential for financial problems. However, inquires of similar types of credit are bundled if they are made within the same brief period, usually a week or two.
- Myth #6 – Checking my credit report affects my score. Any inquires about your credit score from you personally does not affect your score.