[ad_1]
When the COVID-19 pandemic struck last year, people were overwhelmed by the logistics of sudden and rapid stay-at-home orders. Between school closings, supply shortages and new ways of working, there was little time for anything else. As many have adjusted their spending habits, they’ve also taken the time to think more critically about their finances – and some of the government-mandated credit grants have made credit monitoring a particularly good idea.
A new NerdWallet survey conducted online by The Harris Poll in September asked more than 2,000 Americans how they had handled their credit scores during the pandemic, starting in March 2020.
Respondents were also asked to identify common misconceptions about credit scores. The results reveal that there is a lot of misinformation out there about credit, but it is possible to break through the fog and build your score. The first step is to break the myths.
Myth: Checking your credit score will hurt him
Although the survey shows that nearly 2 in 5 Americans (39%) think checking their own credit score can lower it, it doesn’t.
The confusion could arise from the two types of credit checks, called inquiries. Your score is not affected when you check it yourself or when a lender checks it to prequalify you for card offers and other marketing purposes. These are called soft inquiries.
The other type, a serious investigation, happens when a lender checks your credit because you have applied for a new line of credit. Serious investigation can lower your score by a few points, but the effect is only temporary.
Regularly checking your own score allows you to track your credit and quickly spot signs of trouble.
Myth: Your credit score is on your credit report
The survey results show that about 8 in 10 Americans mistakenly believe their credit report includes a credit score. They are two different tools, although they are closely related.
Your credit report contains details of your past use of credit and other personal and financial information. Your credit score, on the other hand, is based on the data in your credit report. This score, usually on a scale of 300 to 850, helps potential lenders assess the risk involved in granting credit.
You have access to both of your:
- Credit Report: You are entitled to one free credit report each week from each of the three major credit bureaus, and using AnnualCreditReport.com is the best way to request them. Reading your credit reports and disputing errors is a good financial habit.
- Credit Score: Many personal finance and banking websites offer a free credit score that you can use to track your progress.
Myth: Having a small balance on credit cards helps your score
According to the survey, nearly half of Americans (47%) think having a small credit card balance is better for their credit than paying it off every month. But it all costs you interest. Paying off your balance in full can also help keep your debt from going beyond what you can afford.
If you want to boost your score, try this approach instead: make a few small payments each month or one-time payments with a paycheck or other influx of money. Continually reducing card balances instead of waiting for the monthly bill keeps your credit usage low, which has a big influence on scores.
So what is true about partitions and how do you build them?
A few proven strategies will help you build your credit. Here’s how to focus your actions on the scoring factors that matter most.
Pay on time every time
Paying bills on time is essential for building credit or maintaining strong credit, as payment history is the most important factor in credit scores. In fact, a payment 30 days or more in arrears can cost a good credit score 100 points.
If you’re struggling to manage multiple due dates, try automating your payments – or at least minimum payments – so you don’t miss any.
Using credit lightly
Using up to 30% of your credit limits is another key to building a good credit score, although staying below 10% is ideal. Stay in control of your credit usage by keeping your credit limits in mind when spending. Two strategies that can help you stay below 30% are tracking your spending and setting balance alerts. Asking for a credit limit increase is another option to consider.
Pay off the card balance in full each month
Paying off your credit cards each month saves you interest and can keep you from overspending. If it is difficult to pay off your balance once a month, try making smaller payments several times a month.
Keep your oldest credit accounts open
The longer your credit history, the less risky you seem to potential lenders. Keeping your old credit accounts open is a great way to show that you have a long, established credit history.
If you are new to credit, you can request to be added as an authorized user to someone else’s credit card account. Pick someone who has an established account and an excellent credit rating. This person’s account history and credit limits will be added to your credit reports.
About the Author: Amanda Barroso covers consumer credit and debt at NerdWallet. She previously worked at the Pew Research Center and earned a doctorate from Ohio State University.
[ad_2]