A disturbingly high percentage of Americans carry any number of misconceptions regarding their credit score. For example, close to half of the respondents to a NerdWallet survey didn’t know that a bad credit score can lead to higher deposits on utilities, and four in ten Americans thought that carrying a little balance can prop up their score. The consequences of these habits and false impressions can creep up and bite people when they need to present a good credit history, for example, when applying for a mortgage.
To help raise awareness in celebration of National Credit Education Month held every March, here are five common pieces of bad advice regarding credit scores. This information isn’t necessarily taught anywhere unless one actively seeks it. Sometimes, these things are learned the hard way but hopefully, some will have read this before personally experiencing any pitfalls borne of a lack of knowing better.
MYTH #1: Don’t check credit score too often
FACT: Only “hard” checks chip away at credit score. Checking one’s own score is considered a “soft” check, which doesn’t affect it at all.
Hard checks or hard inquiries take place when a company or lender takes a look at a person’s credit. This typically takes place when that person is applying for a credit card, mortgage, or other type of loan. As mentioned, someone checking their credit score constitutes a soft check, which can be done limitlessly and free of penalty. It is actually advised to regularly monitor credit score especially when you’re looking to build it.
MYTH #2: Close a credit card to delete negative history
FACT: If anything, closing a card could hurt your credit score
When computing a person’s credit score, their length of credit history is taken into account. Closing a card, especially one you’ve had for a long time, could result in a reduced score. Even worse, closing a card with a balance could result in a much steeper decline. Keep in mind that credit reports remain shelved in credit reporting companies’ databases for seven years, so letting go of a card simply will not delete its history. Provided you’ve been responsibly using your credit card/s, it’s best to keep accounts open, especially the cards with good standing and no annual fees.
MYTH #3: Always carry a balance on a card
FACT: Having a running balance will only increase interest
Balances that linger on a credit card increase the credit utilization rate (CUR), which is the percentage of the available credit being used. In general, the lower the CUR, the better the credit score. On the other hand, maintaining a balance on a card sets off a chain reaction: you incur interest, which increases the actual amount you have to pay, pumping up the CUR, resulting in a lower score. In this case, the old practices remain the best practices: pay the bills on time, and don’t max out a credit card too often.
MYTH #4: Marriage merges credit scores
FACT: A couple’s credit scores and histories remain separate and do not affect each other upon marriage
As much as a good credit score is a green flag for a partner, someone with a low credit score can’t marry a person with a high score and expect a boost in that metric, and vice versa. However, when a couple is filling out a joint application for a mortgage, the bad credit score of one partner can become an issue despite the other half’s good standing.
MYTH #5: Paying a day late is fine if paid in full
FACT: Not paying on time is the biggest way to dent credit score
Conversely, the best way to build credit is to pay installments fully and on time. If for legitimate reasons you are unable to pay on the due date, it helps to have the foresight to determine this and call your lender beforehand. Have an honest discussion and heed their advice on how to proceed.
It’s important to monitor credit score and be aware of practices that add no real benefit or even hurt it. If left uncorrected, these habits can add up and adversely affect your purchasing ability, especially when you plan on buying a home. For homebuyers looking to acquire property in Palm Beach Gardens, FL, contact real estate agents to assess your credit report and match you with the homes for sale that fit your needs and means.
If you are planning on getting a new home in West Palm Beach, don’t forget to give The Telchin Group LLC a call. A top-tier real estate brokerage, The Telchin Group specializes in buying and selling properties at The Club at Ibis, an award-winning West Palm Beach country club, and other locations in West Palm Beach and Palm Beach Gardens.
Give The Telchin Group a call at 561.301.0249 or contact us here to get started on your real estate journey in West Palm Beach, FL