Your credit score is one of the most crucial factors when applying for a loan. It determines whether your mortgage application will get approved or not or even the amount that financial companies will lend you. But many people still don’t understand what makes their credit history rise and fall.
CNBC reports that consumers hold several misconceptions about credit score that it might even put them at risk in the future. Most experts often advise their clients to pay their bills on time to retain a strong credit history. But there are other moves which can lower a person’s score even though it looks like a positive move.
Paying Off an Old Debt
Although paying off an old debt sounds like a good idea, paying debt that is too old won’t do any good with your credit score. That’s because financial obligations that are too old are no longer legally enforceable. So, once you made new payments, the debt collectors will treat it as new. That’s why experts advise paying off the entire balance so they can close the record completely.
Keep One Type of Credit
A portion of your credit score comprises of various activities in your debt. So, if you have several variations of loans and mortgages and handled them well, you have better chances of getting a higher score compared to someone who only has one credit card. That’s because lenders will have more data points to retrieve from your existing loans to make their decisions.
Canceling your Credit Card
Most people often close off their credit card once they’ve already paid it off. But doing so means that you’ll only lower your entire credit limit. To offset your smaller credit limit, you need to build a strategy for paying off the remaining balance as swiftly as you can. Then, try to bring the utilization ration back within the amount that you can manage. But don’t open new cards all at once. Doing so will only lower your credit score.
Not Checking your Credit Score
It can be quite depressing to look at your credit score, especially if you can’t even apply for an FHA streamline in Utah because of it. But neglecting to check your credit report wouldn’t do you any good. There’s a chance that you might be looking at a few errors which can drag your score down. That’s why it’s crucial to review your credit history once every 12 months to ensure that it’s accurate.
If you see any problem, then immediately report it to the credit bureau for further checking. There’s a chance that it’s a case of identity theft or even fraud.
Lack of knowledge about one’s credit score is a massive problem for most Americans, especially to those who are planning to get a house. But despite this lack of information, A Forbes article says that consumers are becoming more confident about it. This only shows that consumers wrongly assume that they know more about it.
Inadequate knowledge about what’s really going on with your finances is dangerous. That’s why you need to regularly check your credit score every year to ensure that all information is correct.