Seven Credit Myths that Can Hurt You
*By Barbara Pronin, RISMedia Columnist
These days, it seems easy for credit scores to be damaged and difficult to improve your scores even when you’ve done nothing wrong. Because scores can be so important to your buying power and even job fitness, and because every little factor counts in determining your scores, Forbes Magazine finance writer Erik Carter offers seven credit myths that could be hurting your scores and costing you money:
I’ve done nothing wrong–Some 70 percent of credit reports contain errors. So even if you think you’ve done everything right, you could be paying higher interest rates because a reporting error has not been corrected.
Checking my scores will hurt me – Checking your own scores once each year will not impact your credit rating.
Okay, I’ve checked – Remember, there are three credit reporting companies; Experian, Equifax, and TransUnion. You need to check all three to be sure there are no errors.
The source doesn’t matter – Yes, it does. Some inquiry sites only give you access to one report. Others, like freecreditreport.com, ironically are not free. They charge a fee to see your report and then charge you a monthly fee unless you cancel. Go to annualcreditreport.com, which allows free access to each of your credit reports once every 12 months.
I’ve paid it off, so I’ll close it – Closing an account when you’ve paid it off can actually hurt your credit score. If it’s a card you’ve had for a while, closing it can reduce your credit history, which is about 15 percent of your score. Also, if you have any debt, closing a card can increase your debt utilization or the ratio of debt to credit available. Instead, you can always cut up the card and not use it.
Bankruptcy is the end of the world – It’s painful and can take seven to 10 years to be removed from your credit report, but many credit scores are practically recovered in far less time. If you can’t pay your debts, think of bankruptcy as a second chance that’s better than allowing the debt to continue hurting your score.
Maintaining a balance will increase my credit score – Opening and using a credit card can increase your score, especially if you’re starting to build or rebuild your credit. But keeping a balance will only increase your interest payments. Remember that having a lot of debt can hurt your score.