Advice is one commodity that never experiences a shortage – everyone has some to give you.
When the subject is credit, following some of the advice will harm your scores, while some of it will make life more expensive.
For instance, you may have heard that you should never shop for a home loan because every inquiry will “ding” your credit score. This is a falsehood that can cost you money.
The truth is, when it comes to home loans, there’s a 30-day window in which all credit inquiries from mortgage lenders are lumped together and treated as one. It seems that the folks Fair Isaac realized that shopping for the best interest rate is a smart move – and no bank will quote a firm rate without seeing your credit scores.
Along that same line of thought, many still believe that checking your own credit scores will damage your credit. This is a falsehood that goes back to the time when the only way to learn your credit rating was to have a lender check it. The score keepers assumed that an inquiry meant an attempt to borrow money.
The only part of this that’s true is that you should still avoid letting a lender or a merchant check your credit for you. Their inquiries will still lower your scores. Checking your own has no impact on your credit scores at all, and is a wise financial practice.
Because errors in credit reporting are rampant and because identity theft is on the rise, keeping track of your credit report and scores is important.
What about credit card use? Financial advisors tell consumers to close their credit card accounts and to use any extra funds to pay off accounts with the highest interest as quickly as possible. Both of these moves can harm your credit scores.
The more credit you have available that you do not use, the better the impact on your credit scores. Thus, when you close an account, your scores will dip. So while you should never use all your credit, you should keep it available.
As for which cards to pay first – Of course you’ll save money if you pay the highest interest card first. But to keep your scores at their highest, first pay off the card with the largest ratio of use.
Say you’ve used 60% of your available credit on a low rate Visa card, but have used only 20% of the funds available on a high-interest MasterCard.
Because credit scoring looks at the ratio of use on each individual card rather than the aggregate, your scores will improve by quickly bringing that Visa balance down.
So if you aren’t going to need new credit soon, definitely pay off the high interest balance first. But if you’re more interested in raising your credit scores, pay off the high use card first.
Author: Mike Clover
CreditScoreQuick.com
