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3 Credit Myths You Should Know That could hurt your credit score
A NerdWallet survey found that Americans aren’t aware of the basics of credit that can affect the credit score of their loved ones.
Written by Erin El Issa Senior Writer | Data analysis, personal finance, credit cards Erin El Issa writes data-driven studies on personal finance, credit cards, investment, travel, banking and student loans. She is a fan of numbers and hopes to make data sets understandable to help people improve their financial lives. Prior to becoming a Nerd in 2014, she was an accountant for tax purposes and freelance personal finance writer. Erin’s work has been mentioned as a result by The New York Times, CNBC, on the “Today” program, Forbes and elsewhere. In her spare time, Erin reads voraciously and tries in vain to keep up with her two kids. Erin is from Ypsilanti, Michigan.
Oct 4, 2022
Written by Kathy Hinson Lead Assigning Editor Personal financial, credit scoring, managing money and debt Kathy Hinson leads the core personal finance team at NerdWallet. Previously, she spent 18 years working at The Oregonian in Portland in roles including copy desk chief and team editor and designer. Her previous experience includes news and copy editing at various Southern California newspapers, including the Los Angeles Times. She received a bachelor’s degree in mass communications and journalism in The University of Iowa.
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There is a lot of misinformation about financial matters, and it could be hurting the credit rating of your. It is found that Americans hold many misconceptions about their credit scores, many of which could seriously damage their credit scores. Three common credit score myths and ways to guard against them.
Myth 1. Leaving a balance on your credit card is beneficial for your score
This is a sticky credit myth nearly half of Americans (46 percent) believe that carrying the credit card balance will benefit their credit scores than paying the balance total, as per the study. But carrying a balance doesn’t improve your credit score and could even cause harm when the balance represents a large percentage of your credit limit. It’s because it raises your credit utilization (the extent to which your limit of credit is that you use) and can negatively impact your score.
Another downside to leaving the credit card comes from the interest expense. Credit card debt, that you incur in the event that you make a mistake and leave the card in a state of balance regardless of whether you intend to do so- is one of the most costly forms of debt because of the high interest rates that are double-digit. Although you might think leaving a small balance on your account wouldn’t be as costly, it could be due to .
If you fail to pay the entire balance by deadline, interest will be assessed, but not just on the balance remaining. It’s calculated on an average day-to-day balance on your credit card. For instance, if you have the balance at $10 on your credit card, but the average balance on your card over the period of time was $1,000, interest is due on the $1,000 balance.
It is possible to combat this by paying off your balance by or before the due date. This can reduce your credit utilization and monthly costs.
Myth 2. The closing of a credit card that you don’t need is beneficial for your credit
The survey found that nearly half of Americans (46 percent) believe that the closing of a credit line they don’t use is beneficial to their credit score. Maintaining a financial product that you don’t use isn’t logical, but closing a credit card can harm your credit score.
Closing a card may ding your credit score due to your credit utilization. While there are a few some reasons, generally speaking, disuse isn’t enough of a reason to take the credit hit.
Even if you do not cancel your credit card, the issuer will eventually close any account that’s not used over a certain period. To avoid this, you can charge a small recurring expense — like a monthly subscription — to your card and create autopay to wipe out the credit card balance each month.
Myth 3. A credit check won’t impact your score
More than a quarter of Americans (28 percent) are unaware that a lender conducting a credit check can make their credit score fall in accordance with the survey. There are two types of credit checks, the hard inquiry and the soft inquiry. If you are able to check your credit it’s a gentle inquiry that doesn’t impact your score. But when a lender checks your score to determine your creditworthiness in relation to a financial product, it’s a , and your score could decrease.
There are exceptions. For instance, with certain financial products, such as auto or mortgage loan, several inquiries made within a brief time period are considered to be an individual hard inquiry. The time frame for processing varies by credit scoring system, but it’s best to submit all applications within a two-week period. This is referred to in the field of “rate shopping” and lets you look around to find the most advantageous loan conditions.
However the process of applying for multiple credit cards in a short period doesn’t fall under rate shopping, and can cause an inquiry that is hard for each application. For this reason, keeping a limit on the number of applications you submit is a smart idea. Hard inquiries could remain on your credit report for two years, so before applying for an additional credit card, ensure that it’s accessible to people with credit scores in your range.
About the author: Erin El Issa is an expert in credit cards and studies writer at NerdWallet. Her work has been highlighted on USA Today, U.S. News and MarketWatch.
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