credit building myths

Blog TLDR

We’re talking about the myths of building credit that are worth avoiding. Dive in with us and break some long-standing credit-building myths.

What are the top credit building myths?

How many credit score tricks do you follow? We all know tried and true practices to keep our credit score looking in good shape, but how do you know when the tips to build credit are actually helping your credit score? Today, there are countless ways to build credit or maintain credit available across the vast online web. Which ones are true? Which ones are simply myths?

Does checking your credit score reduce it?

does checking your credit score reduce it
This is a very common credit-building myth. The more often you check to see your credit score, the worse it gets with each check-in. This idea causes people to fear checking their credit score and forces a general a lack of awareness. The notion that your credit will decrease is untrue. Checking your credit score is known as a soft inquiry. There are different types of inquiries, both hard inquires and soft inquiries. Soft inquiries have no effect on your credit.
Typically, a consumer checking their credit report will be viewed as a soft inquiry. As Experian notes, ” Reviewing a credit report results in what is called a “soft pull” or “soft inquiry,” meaning it will only be seen on a personal credit report.” Checking your credit score, such as with a credit application, has no effect on your credit. Contrarily, checking your credit is a good habit to practice; it helps you to understand your credit and have awareness of your credit line and credit score.

Closing lines of Credit

There are plenty of myths regarding credit lines. One popular myth is that closing credit lines will improve your score. Credit lending companies and banks are looking for steadiness and consistency when approving a loan or credit line; consistency in credit indicates reliability. If someone was to close a credit line at random, for the sake of improving credit, chances are it would be a head-scratcher for anyone looking to approve a loan.
Oppositely, having a credit line open can be seen as positive because it shows a lengthier credit history. The age of your credit account is comprised in your credit report; it is around 15% of your overall score, so while it is not the most important detail, it can make quite a difference when used appropriately. Instead of closing old credit lines to boost your credit, leave them open!
closing lines of credit

That doesn’t mean you should open up a myriad of credit lines. On the contrary, having multiple accounts open does not improve your credit score itself. Having too many accounts open means there is a lot of available credit open via multiple lines; this can be a concern to credit lenders. Credit lenders will begin to wonder why all of that credit is necessary. It can also lead to too many hard inquiries, which can decrease your credit score on its own.

Carrying a Balance is Good for Credit

This is perhaps one of the most detrimental credit myths. Popular belief is that having a balance on your credit account can improve your score. Another popular line of thinking is that paying the minimum amount can help your credit and indicates an ability to gradually pay off credit.
The reality is that paying off minimums with the intent of keeping a small line to improve your credit score is not helpful. It has no effect on your credit, it neither increases nor decreases your credit score. Instead, keeping a balance on your open line only raises interest rates, and with it the amount that you will have to pay off later.
Instead of having a balance each month, it is actually more beneficial to pay off the balance in full when applicable. Paying off your credit balance in full is more helpful than having a balance. Having a lower utilization rate of available credit goes a long way in showing a good credit history. With that line of thinking, accepting a credit limit increase doesn’t have to be viewed as a  “spending trap by lenders”; having a higher credit increase equals a lower percentage of utilization rate, which can improve your credit score substantially.

There are many more myths about spending, building and loosing credit. The reality is that if you are taking steps to create consistency in your credit activity, your credit score is likely to improve. While these are just three of the biggest credit myths out there, there’s plenty more to be wary of. It helps to stay aware and active on your credit score, credit history and credit balances.

This is perhaps one of the most detrimental credit myths. Popular belief is that having a balance on your credit account can improve your credit score. Another popular line of thinking is that paying the minimum amount can help your credit. The idea is that it will indicate an ability to gradually pay off credit.

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