Everyone who has credit, has a credit score. Some are good and some are not-so-good, but if you’ve got a loan or a credit card, you’ve got a score. Credit scores range 300-850, with 300 being the lowest score (obviously). Don’t worry about trying to achieve the elusive 850 score, it can happen, but the heavens and the moons need to be perfectly aligned. Instead, aim for a score around 720+. That is where you will get the best interest rates on loans and credit cards.
Your credit score is as important and unique as your DNA. Everyone has a different credit score, made up of 5 different factors. There are 3 main credit agencies as well – Transunion, Equifax and Experian. It’s important that you pull your your own credit report at least 2 a year to check for errors and identity theft.
Let’s get into the True and Not-So-True:
I can have a good credit score without a credit card or a loan- Not-So-True
You need credit to have credit, and that means a card, a loan like a student loan or car loan, is in your name. That is how you establish credit. Establishing credit is really important to your financial foundation, but that doesn’t mean you go into debt.
Do you have to carry a balance to help your credit score-Not-So-True
In fact, these balances will count against your credit utilization rate, which could hurt your score. This rate, which is essentially how much debt you are carrying versus how much credit has been extended to you, accounts for 30% of the popular FICO score.
Does have a short credit history hurt my score- True
10% of your score is based on length, but this isn’t something you can control. It is a pure mathematical answer based on when you got to your very first piece of credit.
If I pull my credit report it hurts my score- Not-So-True
If you pull your own credit it is considered something called a soft inquiry vs hard inquiry. Soft inquiries don’t count against your credit score, which is beneficial for you. Make sure you are checking your credit at least 1 time a year though, and don’t be afraid to get a report on yourself. You can get an annual FREE credit report, which comes without your score, or you can pay a small fee to get one with your credit score. You should invest 1 time a year in a tri-merge, a credit report from all three bureaus
My credit score is the same at all three credit bureaus – Not-So-True
Different financial institutions report to different credit agencies. You could have a 750 on Experian, a 707 on Transunion and a 715 on Equifax.
If I have a collection or bad debt account and I pay it off, it is removed from my credit report- Not-So-True
A collection or bad account takes 7 years to be removed legally from your credit score. You can try to contact the company and negotiate to pay the debt and have them remove the negative mark from your report, but there isn’t a lot of motivation for credit agencies to do this. Best advice, don’t let your debts go to collection – pay them on time or negotiate with the lender ahead of time.
Paying my bills on time wont necessarily raise my credit score- True
Only about 35% of your total credit score make up – it helps, and it lowers your utilization and paying off bills is good, but it won’t always raise your score. Here is the credit score mix:
35% payment history
30% amount of debt
15% credit mix
10% length of history
I should never have a credit card – Not-So- True
If used properly, credit cards and can offer rewards, points, protections against using cash – you just need a payoff strategy in place.