4 Credit Score Myths

When trying to build or maintain good credit, or rebuild a damaged credit score, you may receive an abundance of advice about what you should or should not do.  Like all matters in life where advice is given, when building good credit is likely for you to hear a great deal of misinformation. Here are some myths about items that may impact your credit score and the realities.

1. Using A Debit Card Can Improve Your Credit.  Some may tell you that you need to charge your debit card as credit at the checkout in order to receive this benefit.  The truth is that this will help your credit score insofar as it will not increase your debts if you are drawing on sufficient funds in your bank account.  However, since using a debit card does not require giving you an extension of credit, there is no benefit to using one when it comes to building your score.  Charging it as a credit will not help either in this case.  All it does is hold your funds for disbursement to the merchant for three days, as it would if you were using a normal credit card.  The benefit is the convenience of being able to make purchases with a swipe.  Alas, if you overdraw your accounts and do not reimburse your bank for its costs and the over-payment, your credit score may be effected – in a very negative way.
2. Paying Your Utilities Will Improve Your Credit Score.  This is, again, not true in the literal sense.  While a financial institution may take prompt payments on your utility bills into consideration when you make a loan application if your credit history is short (they often like to see an absence of missed payments for at least one year on a minimum of two accounts), the credit bureaus themselves will not keep track of your payments.  Like the first myth however, if you are repeatedly late with your utility payments or owe a large back-debt, this may then be reported to the credit bureaus and result in a negative impact on your credit score.
3. It Is Necessary To Have Some Debt to Have A Good Credit Score.  While taking out credit and then repaying your debts in a timely manner will indeed help boost your credit score, having a consistent debt may not help you at all.  Having a large debt will certainly hurt you, if you are above 50% of your combined or individual credit card limits.  The best bet is to use your credit cards or take out loans for large purchases only and then pay them down as quickly as possible.  Having a high credit limit and a low or non-existent debt to limit ratio will help your credit score far more than carrying a constant debt will.
4. Once Something Is On Your Credit Report, It Is There Forever.  We cannot foresee all circumstances of your potential credit troubles, but do not fret if you have made mistakes in the distant past.  Even bankruptcy will only impact your score for a period of 10 years.  Don’t let this knowledge help you to rationalize missing a payment or two.  If these have happened recently, your score will go down.  The larger the late payment, the worse the impact. Furthermore, if inaccurate information is included in your credit report, you can appeal to the credit bureaus Equifax, Experian, and TransUnion to have those mistakes corrected.

One Response to “4 Credit Score Myths”

1. James Brundidge says:

   October 30, 2011 at 6:40 am

   The fair credit-reporting act makes it mandatory for the three organizations (Equifax, Trans Union and Experian) to submit a credit report at the least as soon as a year to anybody who requests for exactly the same. Typing ?annual credit report? in a search engine, which supplies credit reports online and at free of cost, can give access towards the suitable online internet site.