It’s important to maintain a good credit score to qualify for loans and mortgages. It could even land you your dream job down the line.
This is fairly easy to do if you’re consistent with your payments and you don’t stay in debt for long periods of time.
One way you can build up your credit score is by applying for and using a credit card properly. But many people shy away from the idea of getting one because of a couple of misconceptions about it.
We’ve listed some of them below and corrected them to help you get a better understanding of credit works.
Myth #1 Getting a new credit card will lower your credit score
Nope. Opening a new credit account will not instantly lower your credit score. Your credit score depends on your payments and how well you stay on top of them.
Getting a new credit card could lower your credit score just because it’s another thing added to your plate. This could throw you off and make you miss your existing bills.
Getting a new credit card requires a lot of consideration. If you’re sure you’ll be able to make the payments, then by all means, get a new one.
Myth #2 A low credit score doesn’t really mean anything
It sure does. A lot rides on your credit score – like your chances of getting approved for loans. You’re not going to be lent a lot of money if the creditor sees that you’re not good for the debt.
Also, what you might not know is that some companies might want to see their potential employee’s credit report just to see how responsible the person is.
A good credit report implies that you handle your finances well and you’ve got your life together.
Myth #3 You can increase your credit score by getting multiple credit cards
Nope. A lot of people think that having many open credit accounts will boost their credit score. It’s quite the opposite.
In fact, it’s advisable that you consolidate credit cards issued by the same creditor to make everything more manageable.
By having one too many credit cards, you’re bound to neglect some of them. If your total outstanding balance exceeds 30% of your available credit, you credit score is going to suffer from that.
Also, if you keep applying for new credit cards, you’re not going to be able to establish good credit history. Getting a new card shortens it and that drags your credit score down with it.
Myth #4 It takes forever to improve a low credit score
It doesn’t have to. The only thing keeping your from improving your credit score is your poor management.
If you continue to miss payments, let bills go to collections and max out your credit cards, then don’t expect it’s going to improve any time soon.
But it doesn’t take long to improve your credit score if you practice some discipline. A lot of people say that it takes 7 years for positive activities to reflect in your credit score. That’s not true either.
In fact, you can increase your score for up to 50 points in a matter of months.
Myth #5 Higher income means higher credit score
Nope. How much money you make doesn’t directly affect your credit score at all. Your credit score is purely based on how your bill payment habits.
Of course your income has something to do with your ability to pay off your balances, so it is related.
Myth #6 Closing a credit account immediately improves your credit score
Nope. In fact, it will more likely lower score. This is especially true if that card had a balance left on it. That’s going to leave a bad mark on your credit report.
So if you’ve got a credit account that you had opened ages ago and don’t use that much, just let it sit there. Just make sure they’re in good standing.
This improves your credit history, which usually reflects positively on your credit score.
Deil D Pecci is a writer and blogger based in Chicago who covers topics on personal finance and entrepreneurship. Deil D Pecci has made Chicago her home along with his wife and children.