3 Common Credit Myths That Could Hurt Your Score

(NerdWallet) – Financial misinformation is rife and could damage your credit score. A new NerdWallet survey finds Americans have many misconceptions about their creditworthiness, some of which could seriously affect their score. Here are three common credit score myths and how to protect yourself against them.

Myth 1. Leaving a balance on your credit card is good for your score

It’s a persistent credit myth: Nearly half of Americans (46%) believe leaving a balance on their credit card is better for their score than paying it off in full, according to the survey. But carrying a balance won’t help your credit and can even be harmful if the balance is a large percentage of your available credit limit. That’s because it increases your credit utilization (the amount of credit you use), which significantly affects your score.

Another disadvantage of having a balance on your credit card is the interest cost. Credit card debt — which you have when you leave a balance on your card, even if you do so on purpose — is one of the most expensive types of debt due to double-digit interest rates. And while you might think that leaving a small balance on your card wouldn’t be that costly, it may be because of how credit card interest is calculated.

If you do not pay the full balance by the due date, interest will be charged, but not just on the balance. Instead, it is calculated based on the average daily balance on your credit card. So if you have a $10 balance on your credit card, but the average daily balance on your card during the month was $1,000, interest will be charged on the $1,000 balance.

You can counteract this by paying off your balance on or before the due date, which can lower your credit utilization and monthly costs.

Myth 2. Closing a credit card you don’t use is good for your credit score

The poll found that nearly half of Americans (46%) believe closing a credit card they no longer use can benefit their credit score. Keeping a financial product you don’t use seems counterintuitive, but closing a credit card can hurt your score.

Closing a card can affect your credit score in two ways: increasing your credit utilization and decreasing the average age of your accounts. And while there are reasons to close a credit card account, not using it is generally not a sufficient reason to take credit for it.

Even if you don’t cancel your credit card, the issuer will eventually close any account that isn’t used for a period of time. To counteract this, you can charge the card with a small recurring expense — like a monthly subscription — and set up automatic payment to wipe out the credit card balance each month.

Myth 3. A credit check doesn’t affect your score

More than a quarter of Americans (28%) are unaware that a lender who conducts a credit check can worsen their credit rating, the survey found. There are two types of credit checks, a hard query and a soft query. When you check your credit score, it’s a gentle query that doesn’t affect your score. But when a lender examines your score to determine creditworthiness for a financial product, it’s a difficult test, and your score can go down.

There are some exceptions. For example, for certain financial products such as mortgage or car loans, multiple requests within a short period of time count as a single hard request. Duration varies by credit model, but it is safest to submit all applications within two weeks. This is known as “installment 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 hire purchase and will result in a tough request for each application. For this reason, it makes sense to limit the number of card applications submitted. Tough inquiries can stay on your credit report for two years, so before applying for a new credit card, make sure it’s available to consumers in your credit range.

https://wgntv.com/news/nexstar-media-wire/3-common-credit-myths-that-could-damage-your-score/ 3 Common Credit Myths That Could Hurt Your Score

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