Truth and Myths About Improving Your Credit Score
One of the most important factors for your financial health is your credit score. If you do not have a good credit score, you are more than likely going to have a hard time obtaining a mortgage. So before you think about buying a house, here are some truths and myths about how you can improve your credit score.
1. Truth: Late payments can hurt your credit score
Payment history is a big part of your credit score. In fact, payment history makes up around 35% – 40% of your credit score. Paying bills late is a crime when it comes to your credit health. If you are having a hard time remembering to pay a bill, set an account alert on your phone or calendar to remind you to pay a bill.
2. Truth: You should always use credit cards responsibly
Focus on your credit behavior when calculating your credit score. Be responsible with your credit history because this can improve your credit score. Do not spend over your means and try to pay the balance in full each month.
3. Truth: It’s important to stay below your credit card limits
You should not max out your credit cards. This can raise a red flag about your ability to handle debt. Do not use over 30% of your available credit to avoid this. If you have a limit of $1,000 on your credit card, you should not have a balance over $300 month to month.
4. Myth: You shouldn’t review your credit report
This is not true! It is recommended to obtain your credit report once a year. Keep in mind: by federal law, you are entitled to one free credit report per year from each of the three credit reporting bureaus. There are two kinds of reports that can be pulled for your credit. A soft credit is when you check your credit or a creditor checks your credit to be preapproved. A hard credit report is for when you apply for a new line of credit. It is very important to understand your credit so you can improve it and make sure there are no outstanding balances you have missed.
5. Truth: Having no credit is worse than having bad credit
Again this is a myth because creditors want to see how you handle your debt. Having multiple credit lines is okay however you need to pay on time and keep your balances low. If you have no credit, think about opening a small credit limit. Never open several credit lines one after the other.
6. Myth: I should close credit lines I’m not using
Closing old accounts that you might not be using at this time, can negatively affect your credit score. Keep the line open with no balance, this is actually more positive than removing it.
Remember your credit score will be taken into consideration when you are getting approved for a mortgage. A higher credit score will allow for a better interest rate. If you get a better rate, you will be able to have a smaller monthly payment.
