Although most people have some type of credit card and a credit score, not everybody fully understands exactly how these things work. There are several credit card myths floating around out there that are widely accepted as truths. Believing in any one of the following five myths could end up costing you a bundle.
Myth #1: Paying on Time Helps Your Credit Score
While it’s always a good idea to pay your bills on time, it won’t necessarily raise your credit score. This is particularly true if you are close to maxing out your credit limit before sending in your payment.
Your credit score factors in how much of your available credit you’re actually using, so making timely payments won’t help your credit utilization ratio or give your credit score a boost. Try paying your bill a few days before the actual statement date to have a lower balance reported to the credit bureaus.
Myth #2: You Should Close Accounts You Never Use
Many folks are tempted to close off their credit card accounts as they pay off the balances, but doing so might actually harm your credit score. Closing accounts reduces your amount of available credit and lowering that number increases your credit utilization rate. Having a higher ratio can only lower your credit score.
Bear in mind that the longer your credit history, the better you look to the credit bureaus. If you close unused, older accounts, they won’t carry as much weight in the credit-scoring formula as your newer, more active accounts. Instead of closing the account, occasionally charge a small amount on the card and pay off the balance in full.
Myth #3: All Credit Scores Are Identical
Lurking among the credit card myths is the one about all of your credit scores being the same. This myth is busted! Not all lenders report credit activity to the same agencies. The credit agencies don’t all update their records at the same time. Different lenders use different credit-scoring formulas to determine scores.
These factors add up to most people having different credit scores with the different credit agencies. It’s more vital to pay attention to the information contained on your credit report than your actual credit score.
Myth #4: Having a Higher Salary Increases Your Credit Score
Another common credit card myth states that a high income automatically equals a higher credit score. Although having a large salary might help you be able to pay your bills in a timely fashion, it has no direct effect on your credit score or your credit reports. Even extremely wealthy people have poor credit scores if they don’t pay their bills.
Myth #5: Paying Off Delinquent Debts Will Instantly Boost Your Credit Score
This is one common myth that definitely needs to be busted. Because your credit report is actually a history of your payments, any negative credit card account information stays on your credit report for seven years.
Any late payments, charged-off credit card accounts and collection accounts appear on your history, even if the account now boasts a zero balance. Paying off your debts in full will give you a better credit score in time, however.
Keeping your credit score healthy is really a must in today’s credit-centered times, but make sure you know which credit card advice is true and which ones are just myths.