There is a large number of myths and misinformation about credit scores being repeated today as if it were the truth, confusing many people and making it difficult to determine what is fact and what is fiction. Believing in a credit score myth can cost you handsomely, as it can cause you to make the wrong financial decisions and damage your credit rating, so it is important for everyone to learn the truth about credit scores. What you do not know can hurt you financially, so here are some credit scores myths that you should never fall for.
Myth 1 – You Can Hurt Your Credit Score By Shopping Around
Many people believe that you can damage your credit score by shopping around for the best interest rate on a credit product. While it is true that numerous credit inquiries will cause a decrease in your credit score, most scoring systems are sophisticated enough to tell between shopping around and desperately searching for any type of available credit. If all of the credit inquiries occur within a short period of time, like a couple of weeks, they are more likely to be scored as a single inquiry.
Myth 2 – Carrying A Credit Card Balance Helps Your Credit Score
There are no good reasons for carrying a balance on a credit card and all balances should be paid off as quickly as possible. While using a credit card responsibly will be reflected in your credit history and used to calculate your credit score, carrying a credit card balance will hurt your credit score, dragging your score down more the higher the balance goes. Try your best to not charge more than you can afford to pay off each month and dedicate as much money as you can to paying down any carried balances.
Myth 3 – Credit Limit Reductions Increase Your Credit Score
Decreasing your credit limits may help you control your spending, but it will also hurt your credit score. Part of the calculation of your credit score is the ratio of the amount of credit you are using versus the amount of credit that you have available to use. If the ratio is more than 25%, your credit score begins to decrease. The best thing for you to do is to pay down your balances while still keeping your credit limits at the same level they have been at previously.