(Nerd Wallet) – Financial misinformation is prevalent and can hurt your credit score. New NerdWallet survey Americans have many misconceptions about their credit, some of which can seriously damage your score. Here are three common misconceptions about credit scores and how to avoid them. explain.
Myth 1. Keeping balance on your credit card will give you an edge on your score
This is a credit myth. According to a survey, nearly half (46%) of Americans believe that leaving a balance on your credit card is better for your score than paying in full. However, holding a balance does not improve your creditworthiness, and in fact can be detrimental if your balance is a large percentage of your available credit limit. This is because your credit utilization (credit limit in use) increases, which has a greater impact on your score.
Another drawback of leaving a balance on your credit card is interest. Credit card debt (if you keep a balance on the card, even intentionally) is one of the most expensive debts due to double-digit interest rates. You might think that leaving a small balance on your card doesn’t cost much, but it could be because: How credit card interest is calculated.
If you do not pay off all balances by the due date, interest will be calculated, but not only on the remaining balance. Instead, it’s calculated based on his average daily balance on the credit card. So if he has a $10 balance on his credit card, but his average daily balance on the card for the month was $1,000, he will be charged interest on the $1,000 balance.
You can combat this by paying off your balance on time. This can reduce credit usage and monthly costs.
Myth 2. Closing unused credit cards builds credit
The survey found that nearly half (46%) of Americans believe that canceling unused credit cards will improve their credit score. It seems counter-intuitive to keep a financial product you aren’t using, but closing a credit card can lower your score.
Canceling your card can lower your credit score in two ways. Increased credit utilization and lower average account age. And there’s a reason for that close a credit card accountdisuse is generally not a good enough reason to get a credit hit.
Even if you don’t cancel your credit card, your card issuer will eventually close an account that hasn’t been used for a period of time. To combat this, you can charge your card for small recurring costs, such as monthly subscriptions, and set up automatic payments to clear your credit card balance each month.
Myth 3. Credit checks don’t affect your score
According to a survey, more than a quarter (28%) of Americans are unaware that lenders who conduct credit checks can lower their credit scores. There are two types of credit checks: hard inquiries and soft inquiries. When checking credits, it’s a soft question and doesn’t affect your score.But when a lender checks your score to determine the creditworthiness of a financial instrument, it Difficult inquirythe score may decrease.
There are some exceptions. For example, for certain financial products such as mortgages and car loans, multiple inquiries within a short period of time count as one difficult inquiry. Time varies by credit scoring model, but it is safest to submit all applications within two weeks. This is known as ‘rate shopping’ and allows you to shop around for the most favorable loan terms.
However, applying for multiple credit cards in a short period of time does not fall under rate shopping, and each application results in a lot of inquiries. For this reason, we recommend that you limit the number of card applications you submit. A difficult search can remain on your credit report for up to two years, so before you apply for a new credit card, make sure it’s available to consumers within your credit score range.
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https://wgntv.com/news/3-common-credit-myths-that-could-damage-your-score/ 3 common credit myths that can hurt your score