Common Credit Score Misconceptions

by Krantcents · 27 comments

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Want to start your year with a good credit score? That is an excellent idea! While you are sorting out your finances, try to start a savings plan for the future by putting money away into an ISA account. One of the main perks of an ISA account is its tax benefits.

A FICO credit score is normally between 300 and 850 points. The higher the score, the better your credit rating will be and the lower the interest rate you will pay on a loan.

Many people have some misconceptions about their credit scores:

1. When you have paid off a large debt, it is a splendid idea to close your credit card as soon as possible thereafter.

Wrong! By closing your credit card, you are likely to increase your “debt-to-credit utilization ratio”. This is the total amount of your credit card debt divided by the total of all the limits on your credit cards.

The higher the utilization, the higher the risk, as seen through the eyes of the credit score calculator guys. If you use 10% or less of your available credit, you have the best chance at a high score.

To earn the highest score, use no more than 10% of all your available credit. Manage your money well by investing in an ISA savings account.

2. Your employment history has an influence on your score. If you believe that having a job improves your credit score, you cannot be more wrong.

3. Financing a big purchase will lower your score. Wrong again! A new loan on a house or car will not affect your credit score. What will help improve your score is having a number of loans and credit cards and managing them well.

Listen to this; about 10% of your FICO score depends on the kinds of credit you use. Start a back up plan for hard times by putting money away in an ISA account. An ISA account is one of the best investments you could make.

4. Your score is higher if you are older. False! You will have a longer credit history as you grow older, but your age on its own does not impact the score.

Here is good advice; start building a credit history as early in your life as possible and manage it as well as you can. When you have a history of debt and paying your outstanding amounts in full and on time, your credit score will improve.

5. Do you believe that if you keep on checking your score, the mere fact that you watch it will lower your score? Nothing could be further from the truth. It is, however, a good thing if you keep an eye on it to see that it stays in a good range. Check out the credit reporting agencies, Experian, TransUnion and Equifax to see where you stand.

The more financial institutions that are checking you out, the harder it is for your score. If, on the other hand, you are planning to buy a car or a house and you are applying for a mortgage or car loan, you can expect the lenders to go and check your score. This will, however, not affect your rating and they will all be bundled together in one inquiry.

Use your credit wisely, plan your finances and save for your old age with money you save in your ISA savings account. Although your ISA account will not affect your credit score directly, it will help you be financially more stable.

Photo by:  Vectorportal


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