While I don’t think we need to be consumed with our credit scores, they are a necessary evil for the lot of us.
So, unless are debt-free and have gobs of money in the bank, your credit score will be something that follows you around for the purchase of a home and/or car (among other things) if you choose to finance. Add to this fact, there are quite a few misunderstandings around what (or does not) affect your credit score.
I recently came across a Consumer Report article discussing some of these myths and truths surrounding what does/doesn't hurt your score. I thought it was interesting and hopefully will ease your mind when it comes to some of the more discussed topics about what different activities affect your score.
Feel free to chime in about some other lesser-known credit score myths/truths.
Applying for multiple credit cards
In the personal finance blogging world, there are a few advocates of applying for credit cards to earn rewards / earn money.
While we’re not in the camp that recommends this practice, I’ve done this myself – and have been able to benefit from some of the offerings out there.
And, it’s probably not a surprise this practice hurts your credit score. It signals to the credit reporting agencies you could be in financial / credit trouble.
Unpaid parking/traffic tickets and library fees
Apparently there is some discrepancy in these two. Many people are under the assumption that unpaid parking and traffic tickets could affect one's credit score. But, according to Consumer Reports, this is not so. Municipal records are no longer collected by any of the credit reporting agencies.
Along with this are those unpaid library fees that you forgot about from when you were in 2nd grade. These too, are not collected by the bureaus.
Whew (I think I still have a .75 cent fee on mine).
Late payments
Think no one will notice when you don't pay that bill on time?
“Just one late payment can hurt your score and will remain seven years from the date of the missed payment,” Rod Griffin of Experian said in the Consumer Report article.
I typically set up all my bills in Google Calendar. This way I will get an alert of the ones I haven't set-up to autopay.
It's important to know the grace period on your bills – just in case you need it. Typically with mortgage payments, you have about 15-20 days from the due date to pay up (before non-payment is reported). I know there is some grace given on student loans too.
Checking your credit score (a lot)
This is another myth that seems to have been perpetuated.
While it is an aggregate score from some of the other bureaus, Credit Karma's score they provide is very close to what you can expect from FICO. I typically get emails from them when my score has gone up / down. It's a very helpful and free service.
Takes a long time for your score to go bad
According to The Balance, it only really takes a few months of missed payments to affect your score.
At six months past due, your account will be charged off – which is one of the worst things you can do to your credit rating. Multiple charge-offs or collections can ruin it for good.
Employers check credit scores
It is actually against the law for employers to check your score.
But, they can check your credit report.
Going into debt to create a good credit score
When I first started out and learning about all things personal finance, I was under the impression that I'd need to “hold” debt to create a decent score.
The truth is that just opening up a credit card, charging an amount to it and then paying it off each month, will help generate your credit score.
Can you think of other credit score myths you've run into or have experience with?
Paying your cell phone bill on time (and a lower one at that!) will help your credit score. Aaron pays under $15/mo for 500MB, unlimited talk/text on his plan.
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