What Affects Your Credit Score
There are many myths about what affects your credit score. This can be counter productive, as when people don’t understand how to manage their credit score, they can really suffer in the long run.
In an effort to help the average consumer, we’re going to look at two common myths about what affects your credit score. These are two well traveled myths, but today we are going to expose them for what they are, myths.
Myth one, paying your household bills on time will improve your credit score.
Paying bills on time is great, and people with excellent credit typically do pay their bills on time. There is no connection, however, to paying your household bills on time and your credit score unless your household bills report on your credit report, which is rare. If you’re not sure, you should get a copy of your credit report and check.
Your credit score is partially derived from creditors who report the the credit bureaus. Your household bills do not report to the credit bureaus, unless they have to send your account to collections. Paying on time every month will not be reflected in your credit score.
Paying your credit cards, mortgages, student loans and the like on time, however, will impact your credit score. Even that, though, is only a small part of your overall credit score. About a third of your score is directly related to on time payments (only on accounts that report to the bureaus), so two thirds of your score is not related in any way to making payments on time.
Myth two, carrying a balance on your credit cards is good.
Carrying a balance on your credit cards is not beneficial in general. Small balances in proportion to your credit limit are not bad, but carrying a balance of more than fifty percent of your card limit is detrimental. Carrying a smaller balance is better, less than thirty percent is good, and less than fifteen percent is excellent.
Carrying a zero balance is great as well. Rather than worry about carrying a balance on your cards, you should worry about using them. Be sure to use each card once every six months. You can use it, and then pay it off in full on your next statement and you will get the benefit of that account, even though you are not carrying a balance.
There are many more tips for those looking to manage their credit.
For more on this topic, visit my free credit report. Also take a look at these free credit tips to help improve and manage your score.
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