Right knowledge about credit report and score always help in achieving a good score. The idea behind this is, if you have right knowledge, then you can at least work towards having a good score. Here are 5 realities which you should know about your credit score.
1. You need to worry about your credit scores
You might think that credit scores are only useful to lenders and you don’t have to worry at all. You might also think that handling your finances responsibly will help you have a great score. However, to achieve a good score, you need to use your credit responsibly. You have to use your credit cards and repay the outstanding balance every month. You should also check your credit reports periodically in order to be sure there are no errors. All these things will help you have a good score and in turn, will help you take out loans at favorable terms and conditions, which in turn, will help you enjoy a better lifestyle.
2. Not all credit inquiries hurt your credit score
It is a myth that checking your credit reports will hurt your score. To know the reality, you need to know that there are 2 types of inquiries, hard inquiry and soft inquiry. The latter or soft inquiries occur when you request for a copy of your credit report in order to check it and hard inquiry happens when a credit card company, a bank or a loan company checks your credit report to decide whether or not you’re a creditworthy person. Soft inquiries have no effect on your credit report but hard inquiries do affect your score though not much.
3. Buying items with cash does not help in improving your score
While trying to improve your credit score you should know that your credit report and score cares only about what you purchase on credit. If you stop using your credit cards and start purchasing with cash, it may help you reduce the amount of debt on your credit cards, but not help you improving your score unless you repay the outstanding balance on your cards. To have a good score, the most important thing you need to do is manage your credit responsibly.
4. Closing your credit accounts will not help improving your score
Closing your credit cards never helps in improving your score; on the contrary, it may hurt your score. The reason behind this is that the credit bureaus look whether or not you have low credit utilization, which is the ratio between the credit you are now using against your available credit limit. Therefore, if you close one of your credit accounts, it will instantly reduce your available credit limit thereby increasing your credit utilization. You should try to keep your credit utilization ratio within 30 percent.
5. Overdue medical bills also hurt your credit score
Medical bills, like other bills, also hurt your credit score negatively if it is not paid on time. Therefore, even if your insurance company is supposed to pay your medical bills, do follow up with your insurer to check that it has been paid on time. This will prevent your account from going to collections and in turn, it will not be reported negatively in your credit report.
Another popular myth is that an increment in your income will improve your credit score. Unquestionably, it is not at all true. By now, it must be clear to you that your credit score depends on how you manage your credit. So, your score will not improve with a salary increment. However, if you use that increment to pay off your existing debts, then over a period of time, it will be reflected in your credit report and you will have a better score.