Oct 182017

MYTH #13: Paying My Credit Cards Will Increase My Credit Score

REALITY: Making your credit card payments on time will give you a good payment history and over time this does have a positive impact on your credit score. However, if you want your score to quickly improve, pay down the balance on your credit cards. This will cause your revolving "utilization rate" to become lower, increasing your credit score.


When A Credit Card Company Does Not Report Your Credit Limits
Credit card companies, who report to the credit bureaus, are required to report your payment history, your current balance and your credit card limit. In some cases, credit card issuers report your highest usage on your credit card as your credit card limit and not the actual limit. It is important that they accurately report your credit card limit, as it affects your utilization rate and ultimately your credit score. Be sure to check your credit reports to confirm accurate credit reporting.

Closing a Zero Balance Credit Card
With 30% of your FICO credit score being based on your utilization rate, it is recommended that you never close a credit card. Even if you have an account you are not using, it is going to help your utilization rate and in turn raise your credit score. If you have a credit card you haven't used in a while, we recommend you make a small purchase at least every other month in order to keep the card active.

Renting a Car with a Debit Card
Many rental car companies have a clause in their rental agreements stating if you use a debit card as opposed to a credit card, they have the right to pull your credit report. If they do pull your credit, it will cause a credit "inquiry." Most inquires affect your credit score by about 5 points, the number of points can vary depending on your current credit standing.

Opening a Department Store Credit Card
It can be tempting to open a credit card for the stores discounts and offers; however you might want to reconsider. Not only do department store cards typically carry much higher interest rates than national brand cards, like Visa and MasterCard, but it can trigger a "hard inquiry" on your credit report because you are applying for credit. This in turn could lower your credit score.

Buying Furniture With the Stores Financing Options
Not all debt is created equal, particularly when it comes to your credit score. When you buy furniture from a furniture store and then finance it through their finance company, it can lower your credit score because these types of companies are seen as "lenders of last resort." If the store qualifies you for a $1,000 credit card and you proceed to buy a $900 sofa, your credit report will reflect this account being nearly maxed out with a 90% utilization rate which could also lower your credit score.

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