credit scores, the adult version of a surrogacy. Isn’t it amazing how little we’ve learned about this elusive number in school? As someone who had to take an economics course in college, I can assure you that the questions of personal finances were simply not covered. And with so many credit score horror stories on a quick Google search, it’s hard to know what actually impacts your score compared to what is a good old internet tradition.
Fortunately, we have a knowledgeable speed dial expert who can walk us through common credit score myths to avoid, as well as how to aim for that coveted âperfectâ credit score. Read on as
Kimberly palmer a personal finance expert at Nerdwallet, answers frequently asked questions about credit scores, and more to help set us all on the path to financial freedom. If you are not familiar with NerdWallet, this is a personal finance site and app that helps consumers make the best financial decisions, and it includes information and ideas on how to build your credit score.
But first, what is considered a good credit score?
Before we dive into how to build your credit score, we want to make sure that you have an information base to best assess your current financial situation. As a reminder, your credit score estimates the likelihood that you will repay borrowed money and pay bills, and typically ranges on a scale of 300 to 850. Although creditors set their own standards for the ratings they will approve of. , here are the general ranges:
Now on to expert advice and myth busting.
Myth # 1: If You Have Bad Credit Now, You’re Stuck With That Score Forever
âYou are definitely not stuck with bad credit forever,â says Palmer. âYou can increase your credit score over time by making payments on time every month, using 30% or less of your credit limits, and keeping your old accounts in good standing so you have a longer history. show on your credit report. ”
Myth # 2: Checking Your Credit Score Hurts Your Reputation
“When you check your own
credit rating, it doesn’t hurt, but your score may take a temporary hit if you apply for a new credit account, be it a mortgage, car loan, credit card or any other type of loan product, âsays Palmer. This triggers what is called a “hard draw” on your credit, which can signal lenders that you are considering taking out a loan. When a lender checks your credit score as part of your credit application process, it is considered a difficult exercise. ”
Myth # 3: Having a Balance on Your Credit Cards Helps Your Score
“Carry a balance doesn’t help your score, âsays Palmer. âAnd in fact, you want to make sure you keep your total balance below 30% of your credit limit so that your balance doesn’t hurt your score. This myth probably leads some people to carry a balance on their cards when they better pay it off. Having a balance on your card is also expensive because you are paying interest. ”
Myth # 4: Achieving a Perfect Credit Score is Impossible
perfect credit score is possible, but anything above 720 is considered excellent credit. Less than 1% of consumers have a perfect score. ”
Myth # 5: Closing a Credit Card Will Improve Your Credit Score
âClosing a credit card can actually hurt your credit score because it can reduce your credit history and also wipe out the credit limit available on that card,â Palmer shares. The same can be said for loans. “Another myth is that paying off a loan will help your credit score; sometimes when you pay off a car loan or mortgage it can hurt your score because you have a less active line of credit.”
Myth # 6: If My Partner Has Bad Credit, My Credit Score Will Go Down
Palmer says, âEach person has their own credit rating; it is not shared or directly affected by a partner. But there are ways in which a partner’s behavior could hurt your credit rating; for example, if you share a credit card and the partner spends too much account is late. If both of your names are on the account, it may impact both of your credit scores. ”
How To Build Your Credit Score
Now that we have all the myths dispelled, what are the next steps to building your credit score today? To get started, you can easily
check your credit score and credit report with NerdWallet to understand where you are now.
To raise your credit score, Palmer says you need to make on-time payments on all of your accounts each month; then, use less than 30% of any credit card limit, making it easier to use your credit; and finally, keep your old accounts open and in good standing to give you a longer credit history. As to when to expect to see the results of your hard work, says Palmer, âYou can see your credit start to improve in a month or two after you make on-time payments to your accounts. You can also see almost immediate progress if you have a relatively thin credit history and are added to someone else’s credit card account as an authorized user or if you successfully dispute an error in your credit history that kept your score.
As a final tip, if there is one thing everyone reading this should do today to start seeing positive progress, Palmer suggests to “set up automatic payments for at least the minimum credit card amount. owed on your accounts to reduce the risk of accidentally missing a payment and being hit with a late payment penalty You just want to make sure you have enough money in your bank account to make these payments before you automate them.
For detailed information and additional resources on what credit score do you need to buy a house, To take a loan, or more generally to understand what is considered a good credit score, check out NerdWallet’s in-depth research. With these helpful tips, good credit is finally within reach.