Whether you know it or not, there might be things you are doing that can affect your credit score for the worse. Even if you aren’t buying a home anytime soon, you don’t want to be surprised by your credit score when you want to buy a car or refinance, for example.
The decisions you make can hurt or help your score, and that’s why it’s better to have an understanding of what can impact your credit score. Even decisions or actions you think will help your score can actually hurt it!
Sound confusing? You’re not alone since many borrowers don’t know the difference between fact and fiction when it comes to building a good credit score.
Let’s clear it up for you so you can avoid making these mistakes below:
Myth 1: Paying late didn’t hurt my credit since I’m caught up now.
It’s important to pay all of your bills on time, every time! Doesn’t matter if you’ve caught up … you were late and your account knows that.
If you must pay late and want to avoid damage to your score, pay the accounts that report to credit bureaus first. You can find this information by getting a copy of your credit report.
For example, credit reporting agencies say their records are updated “routinely,” but this does not mean instantly. It may take one to three weeks for your credit card company to report a payment or paid balance to the credit agencies, then more time for the agency’s reports to reflect the update.
This is where your own credit report and the dates indicated can tell you which of your credit card companies are more prompt in reporting and which ones may take a few more days.
Myth 2: Dollar amounts matter in credit scores.
It may sound crazy but dollar amounts don’t matter in FICO scoring. The effect on your score is the same for a $1 late payment as a $1,000 late payment.
So don’t take the advice to pay the highest bill first if you can pay off smaller bills first.
Keep in mind that the fewer late payments on your credit report, the higher your score—regardless of their dollar amounts.
Another way to increase your score is to have a high credit limit but low balance – it’s all about the percentage of how much you have available to use versus how much you actually use. It signals that you are creditworthy and have paid your bills.
Pro tip: Call your credit card companies to increase the credit limit as high as possible but just don’t use the credit and pay down the balance so that it’s about half of the credit limit or lower.
Myth 3: Closing credit card accounts helps your score.
Don’t do this!! If you cancel a card, you may have just thrown away your chance to increase your score by continuing to build on years of positive credit.
Remember – it’s all about the percentage of capacity versus usage (how much you have available to use versus how much you actually use)!
When you have a long-term and positive account history with an account, it can really boost your score. Believe it or not, it’s better to keep your cards open and active, using them for small purchases here and there. You can also do this to help build up your score if it isn’t high enough.
Avoid these mistakes and keep your credit score high. If you have any questions, email me anytime!
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