About half of Americans have no idea that a negative credit can limit one’s options for cellular phone services. Almost a quarter thinks a person only has one credit score. And 41 percent think that carrying a revolving balance on their credit cards can actually improve their credit scores.
These are some of the facts reported from the results of a recent survey commissioned by NerdWallet and conducted by Harris Poll. It appears that a lot of Americans don’t hold the facts straight about their credit scores.
Here are the most common misconceptions highlighted in the report.
A score of 600 is good.
No, a score of 600 is considered below average and it won’t even qualify you for a credit card, as what one in every five Americans believe. For long-term financing and taking out big loans such as a mortgage, scores starting 640 and above are considered ideal. Having a score of 700 and above generally gets you access to better financial products. That means if your score is lower than this threshold, you will have limited access to financing options and more likely be paying for higher interest.
You basically start off with perfect credit.
Credit is built. You need to establish history to prove that you are a credible and reliable borrower. You can establish credit by paying off your credit card debts on time, your utility bills, your loan payments, etc. Timely, full payments will pull your score up as bad credit practices will also ruin it. You don’t get to automatically own a perfect score. As they say – no such thing as free lunches!
Carrying a revolving balance on your account improves your score.
Carrying a balance means paying interest. If you keep carrying balances month over month, your interest payments will also accrue. The mistaken benefit of carrying balances is a misconception that two in every five Americans believe. Know that paying off your balances every month is the better option. This could raise lender confidence should you need financing in the future.
Checking your score damages your credit.
There are basically two types of inquiries: a soft inquiry, which is when you check your score, and a hard inquiry, when your lender pulls out your record to verify your creditworthiness. A soft inquiry does not hurt your record, and you are in fact entitled to a free credit report from the credit reporting agencies every year. You may also check your score for free at AnnualCreditReport.com, the only left site to offer so.
A hard inquiry, however, has the potential to damage your score if you apply for loans from too many lenders. Frequent record pulls can make it seem like you are unstable financially and are desperate for money.
Always spend close to your limit.
Aside from your payments, lenders also look at your utilization ratio, or how much of your available credit you use. Experts suggest that to have a good score, using 30 percent or less of your available credit is a good usage percentage.
Knowing these misconceptions can hopefully help you adjust your credit habits accordingly. Start building up a good score that adequately reflects your creditability as a good and responsible borrower!