As you settle into your life in the United States, you shouldn’t be shocked that credit reports are everything here. That’s why understanding the ins and outs of credit can save your life. In fact, establishing a solid credit history is a must for achieving financial stability and reaching your goals.
But, you may often hear that the world of credit is such a horror, especially when there are so many myths floating around. Hence, we’re here to help. We’re going to bust some common credit myths that every new US citizen should know about.
Leaving a Balance on Your Credit Card Is Good for Your Score
Guess what? It’s actually a myth. Leaving a balance on your card doesn’t help boost your score; in fact, it can do the opposite. Here’s why: when you carry a balance and only make minimum payments, you’re accruing interest charges.
Not only does this cost you more money in the long run, but it also increases your credit utilization ratio – the total amount of available credit you are using. High utilization ratios can negatively impact your score. So, instead of leaving a balance hanging around, aim to pay down your credit card bill in full every month to maintain good financial health and keep that score climbing.
Closing Credit Cards Boosts Your Score
Contrary to some popular Credit Repair Payment Processing Options, closing credit cards can, in fact, have a detrimental, harmful impact on your credit score. It’s because one of the key factors in calculating your score is the total credit utilization ratio, which basically measures how much of your available credit you are using.
When you close a credit card account, you decrease the amount of available credit you have, which can increase your overall utilization ratio and lower your score. So, instead of hastily closing old accounts thinking it will improve your score, consider keeping them open but inactive if they don’t come with any annual fees or other costs.
A Credit Check Won’t Impact Your Score
When you apply for new credit or loans, lenders will typically request to pull your credit report to carefully assess your risk as a borrower. This is known as a “hard inquiry,” and it can often lower your score by a few points.
While one or two hard inquiries may not have much of an effect on your overall score, multiple inquiries within a short period of time could raise red flags for lenders and potentially lower your score even more.
So, if you’re planning on applying for new credit or loans in the near future, be mindful of how many times your credit is being checked to avoid any negative impacts on your score.
Paying Off a Debt Removes It From Your Report
While paying off a debt is certainly a positive step towards improving your financial health and creditworthiness, it doesn’t automatically erase the record of that debt from your credit report. The information about the debt may continue to appear on your report for up to seven years or longer, depending on the type of debt and local regulations.
But don’t worry! Even though paid-off debts remain on your credit report, lenders typically view them more favorably than unpaid accounts. So keep making those payments and focus on building good credit habits – it’ll pay off in the long run.
With this knowledge under your belt, along with responsible money management practices like budgeting wisely and saving diligently – there’s no doubt that you’ll pave the way toward achieving personal financial goals.