Everybody seems to be wrapped around what their credit score is and how they can increase it quickly. So I thought, why not talk about some of the most popular myths people believe about credit scores? I’m not a financial expert. I’m just like you and I’m just learning as I go. So while I’m at it, I’m also going to share some tips on how to build your credit score.
I used to always think that if you don’t have a credit card, and you want to build your credit score, then you can start building it by paying your rent, or maybe your gas bill. But that’s a myth. It’s not true at all.
Your credit score is based on your debt payments. So, for you to start building your credit score, you will need to have a secured credit card first.
A secured credit card is like being provided five hundred dollars but it’s really backed by your own five hundred dollars. That means you would have to pay for every inch of dollars for them to give you a secured card. It’s still like spending your own money. Having a secured credit card is a great way to get started if you’re trying to build your credit score but you don’t have credit cards yet.
Another myth about credit cards is that if a credit card isn’t being used, then it should just be cut off and cancelled. Turns out this is not true at all because if anything, cancelling a credit card will only hurt your credit score.
So it’s actually much better to keep your credit cards open for as long as possible especially if it’s an old credit card. So even if you’re not using that credit card, you want to leave it open or maybe use it to make little payments that you can just pay it off in full every month because that is still helping your score.
The only right way to build your credit score is to pay on time. If your payments are not made on time, you will get penalized and that will definitely hurt your credit score.
Opening a bunch of store cards you know every time you go shopping is said to help you save but it actually doesn’t. And it won’t help your credit score either. So you don’t want to have too many store cards open.
Keep in mind that in order to build your credit score, you have to watch your utilization or the amount that you’re using on your cards. So if you have three credit cards, you don’t want to spend $2,500 on each of your cards each month because that would make your utilization reach up to 50%. You want to make sure that your debt balance doesn’t exceed 30% because once it gets over that 30%, it’s really going to affect your credit score.
65% of your Credit Score is calculated by paying your bills on time and using credit wisely. That’s right 65%! It’s important to make sure that you have a good credit score because the lower your score the more money you’ll end up having to pay on your loans. Bad credit can cost you a lot of money. Especially if you’re planning on taking out a loan for a home or a car. The higher your score the lower your loan interest should be. And of course lower loan interest means that you’ll be saving more money and able to get to paying the balance amount faster.
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