Spend what you have:
Don’t commit on expected earning.
Myth: Paying your bills on time and carrying a balance on your credit cards will give you a good credit score.
“Folks think they have to carry a balance on their cards in order to get a good credit score,” says Opperman. “We let them know they just have to make a purchase and then make a timely payment.” If you have cards with high balances, even if you make your minimum payments promptly every month, the large amount of debt you’re carrying makes you look like a higher risk to the credit bureaus and will reflect poorly on your score.
Myth: You have to make a huge financial mistake for your credit score to be negatively affected.
“One common myth is that credit scores are static, that they don’t change that often or that you have to do something huge for them to change,” says Natalie Lohrenz, director of counseling at the Consumer Credit Counseling Service of Orange County. But since a credit score is just a snapshot of your credit’s health at any given time, it’s going to vary at least a little bit from time to time. To put it in more concrete terms, you wouldn’t expect your blood pressure to be exactly the same every time you go to the doctor, right? Your credit score goes up and down just a little bit the same way. Conversely, since your score is in constant fluctuation, you shouldn’t stress over a point here or there, Lohrenz says.
Myth: The only part of your credit history that matters is your three-digit score.
Terry Clemans, executive director of the National Credit Reporting Association, says many Americans only focus on their score number, to the exclusion of their actual credit report, from which the score is derived. Lohrenz agrees and add, “People shouldn’t really obsess so much about the score. Watch the report.” In fact, the report is at least as important as the actual number, which is why experts recommend checking it regularly for outdated or erroneous information that can lower your score.
If you don’t want to pay for a credit report, you can get one free once a year from each of the three bureaus at annualcreditreport.com, and if you live in certain states, you may be entitled to additional copies. Monitoring your report regularly not only cuts down on your risk of identity theft (since you’ll be able to see if someone is trying to obtain credit in your name) but gives you a better sense of how your financial activities are displayed to lenders.
Myth: You can improve bad credit quickly.
You really can’t blame ordinary Americans for falling prey to this myth, given that there’s an entire industry that purports to boost your credit at warp speed. “One common myth is ‘If I want to improve my credit, I have to go to a credit repair agency,’ ” says Barry Paperno, consumer operations manager for MyFICO.com. As we’ve discussed before, companies that promise to “clean up,” fix or increase your credit score are bad news. At best, they’ll blanket your creditors with frivolous requests to review your outstanding debts, which might raise your credit score for a few weeks at most. As far as correcting any erroneous information that might be dragging your score down, you can fix that yourself – for free – by following the instructions on each bureau’s website.
While negative notations do stay on your credit report for seven years, Paperno says this doesn’t mean your credit will be low for nearly that long. The scoring formula places more weight on recent transactions, so if you had a period of financial instability or irresponsibility in your past, the best way to see your score improve is just to keep paying everything on time now, and paying down big balances to improve your utilization ratio. “The best way to improve your credit score is work with your local bank or credit union and then make timely payments,” says Opperman.
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