3. We only have one type of credit. You have credit cards, and you pay your bills on time, so your credit must be pretty close to perfect, right? Not exactly. Avoiding different kinds of credit can also hurt your credit score. If you have a credit card without loans or mortgages, your score could be lower. Similarly, having only school loans without credit cards can hurt your score, too. The best way to ensure you’re maximizing your credit score is to keep a diverse amount of credit in your credit portfolio in addition to paying all of your bills on time. Of course we’d never advocate getting a loan just to improve your credit score, but it’s good to keep in mind that adding a mortgage or car loan can actually help your credit score.
4. We listen to myths about “good” debt. One of the worst misconceptions about credit is the myth that holding on to a little bit of debt can actually help your credit score. The problem is the total amount of debt that you owe, along with your credit utilization ratio, is a big factor in calculating your credit score. Holding on to debt can not only hurt your credit score, but incur additional charges that you don't need to pay. Bottom line, the less money you owe, the better.
5. We don’t check on our credit until we want something from it. Say it’s been a couple years since you checked your credit score. After all, it was fine where you left it, right? Later you go to buy a car or apply for a mortgage and discover you’ve been denied because of your credit score. It’s only then that you check your credit score and learn that someone stole your identity years ago, opening credit cards in your name and destroying your credit. Now you can’t buy that car or house and figure out how to repair all the damage.
Remember, things outside of your control can affect your credit score. Lenders can make mistakes. Your identity could be stolen with credit opened in your name. If you’re not regularly monitoring your credit score, these mishaps can drag down your score unbeknownst to you. It's a good idea to check your scores at least once a year or a few months before you think you might apply for a loan or line of credit. Consider a credit monitoring service if you want to regularly keep tabs on your credit.
While all of this advice can help you raise your credit score, the most important piece of the puzzle is paying everything on time. Timely payments show that you know how to handle your credit without taking on too much debt. Lastly, always remember the golden rule of obtaining a high credit score: less debt, more credit.
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