National Get Smart About Credit Day is a national campaign that helps raise awareness about the importance of credit to young people. It’s not only important for young people to become aware of credit and their financial goals, but it’s also beneficial for all ages to constantly learn ways to improve their credit score as it can play a big factor in many financial decisions. Take time to celebrate this day with these six credit myths shared by Farnoosh Torabi of Mint.
Myth #1: My boss can check my score.
This is one of the most widely misreported details about credit scores I read about and hear from consumers. While some employers do ask for your permission to conduct a credit background check as part of the application process [and they must get your approval ahead of time], they’re only reviewing your credit history — not your credit score. The terms credit “report” and credit “score” sometimes get used interchangeably, as if they’re the same thing. They’re not!
Myth #2: It’s not a good idea to pay off my balance every month.
I heard this fallacy in my young adult years and it continues to come up in conversations today. Some individuals – for example, a couple listeners of my podcast – have written in and said they’ve heard it’s better to carry a monthly balance on your credit card bill. They think it’s a way to increase your credit score. While it is true that you should “use” your credit card responsibly to establish strong credit, some mistakenly think that means you should “use” the card by “carrying a balance,” because that shows “activity.” The truth is that it’s best to pay off your card in full – and on time – each billing cycle. Otherwise, you end up paying interest. Carrying a balance can also negatively impact your credit score. Your debt to credit ratio is 30% of your credit score. The lower your debt level, the lower your ratio can be. And that is, ultimately, better for your score.
Myth #3: My age and income impact my credit score.
False and false. It is true that the longer your credit history is, the better it is for your credit score. But your age, on its own, is not what matters. Someone who’s 85 years old who just opened up his first credit card won’t necessarily have a higher score than someone who’s 30 years old with a ten year history of managing credit. In fact, the person with the decade-long credit history – all other factors equal – would presumably have the higher score. [The length of your credit history is equal to 15% of your credit score.] And it may be true that those with higher incomes can better afford to stay out of debt – which, in turn, keeps the credit score in good shape. But neither variable directly impacts your credit score.
[Read the full article here]