The # 1 mistake that can hurt your credit score

There are not many absolutes in this life. Death and taxes are generally the two things listed among the certainties of life. Well, I add a third: credit score confusion!

I hear a lot from people who have misconceptions about credit scores. Our credit score system is extremely complex and not at all intuitive.

So let me assure you right away: It’s not you, it’s them.

With that said, it’s important to know that not understanding how credit scores work can actually hurt your credit rating.

Here’s the number one mistake people make – along with four other common mistakes – that can really hurt a healthy credit life.

Biggest Credit Score Mistake: Thinking You Must Have A Balance To Gain Credit

The truth: no, you don’t! You can create a good score without paying interest on your purchases.

This misunderstanding hurts a lot. Here’s the responsible – and inexpensive – way to use credit cards:

• Have a budgeted amount that will go to your credit card each month.
• Track your spending to stay within your card budget.
• Do not charge more than 30% of your available credit. Keep it below 10% if you want to increase your score quickly.
• Pay your bill in full each month and always on the due date.

Stick to this plan and you’ll be on your way to a great credit score. And remember to pay all of your bills on time, not just credit cards.

Your payment history is a huge 35% of your FICO score, then do whatever you need to do to remember when bills are due.

4 other mistakes that could lower your credit score

1. Believe that a higher income leads to a higher FICO score

The truth: your income is not factored into credit score calculations.

A financially responsible person who earns $ 20,000 a year may have a higher FICO score than a well-paid neurosurgeon who does not pay their bills on time. So never think that your salary will stop you from achieving a high score. If you use your cards responsibly, which means keeping a low balance and paying the bill in full and on time, you can create a high score.

Low income can prevent you from being approved for certain credit cards. It can also lead to a reduction in the initial credit limit. But focus on maintaining a high score, and you’ll have plenty of credit card offers to consider.

2. Thinking that since my husband / wife / partner has great credit, that means I do too

The truth: you don’t have a joint credit report or combined FICO score.

This one has a lot of layers, so bear with me. As a couple, you don’t have a shared history that results in just one credit report. If you have joint accounts, you’ll see them listed on your individual credit reports.

Likewise, you have your own FICO score and your significant other has their own FICO score. But the are the ways in which you can have a mutual impact on each other’s scores. For example, if you have a joint credit card account, it is essential that you both manage credit responsibly.

If either of you gets sloppy with bill payment activity and a late payment shows up on your credit reports, it can lower both of your scores. The reverse is also true. If you are both on top, your individual scores get stronger.

On the plus side, two great FICO scores can help you when applying for a mortgage or other loan together. So yes, you have the potential to be stronger together, but only if you’ve each built a great credit history.

3. Viewing a free score from a website is equivalent to a FICO score

The Truth: No, the free scores provided by websites are not a FICO score.

Sometimes I get emails from people who think they have a great FICO score. Unfortunately, I have to tell them that the score they are talking about is not a FICO score. Websites that offer free credit scores get your information from one or more of the major credit bureaus. The score you will see could be a version of a VantageScore or some other type of credit score.

These scores are valuable. You will often get category “grades” as well as tips on how to improve in certain areas. For example, if you get a “C” in the payment history, this is the area you need to clean up.

But many credit card issuers now show a credit score on your card statement every month. Some of these aren’t real FICO scores, but they’re still useful. If you’re not sure what credit score you’re looking at, ask your card issuer. And if you want a surefire way to check your FICO score for free, check out Credit score card. It’s a free Discover website, and you don’t need a Discover card to use it.

About 90% of lenders use some version of the FICO score when reviewing credit applications. So it’s a good idea to check it every now and then and see where you stand.

4. Thinking that you don’t really need a credit score

The Truth: A bad credit score can lead to higher costs in other areas of your life. The complete lack of a score (there is no zero in the FICO world) makes you look risky to anyone looking at your credit report.

Life is really not fair. You would think that not using credit would make you look totally responsible. Instead, it looks like you can’t get credit.

Credit reports are sometimes viewed by people who aren’t looking at you for a credit card or mortgage. It is increasingly common for employers to check the credit reports of job seekers.

Be aware that your credit report does not show your credit score. But a score is calculated based on the content of your report. If you don’t have a score (or a bad score), the credit report details will communicate it.

Other reasons for needing credit? Insurance companies look at specialized versions of credit scores to determine your premiums. Those with higher credit scores usually get lower premiums.

Also, if you have to rent an apartment and you have bad or no credit, you can pay a higher security deposit; the same goes for deposits for your utilities. It is also helpful to have good credit when applying for a checking account so that you can get a debit card.

What if you want to buy a house? It’s very difficult to do that without getting a mortgage at a good rate. If you have amassed a large amount of money that you can deposit in the bank, you will be fine. But for most people, this is a tall order.

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