The Internet is a beautiful and magical tool, giving us access to almost all of the world’s information, right at our finger tips. Unfortunately, not all online advice is created equally.
Facebook is great for not-so-urgent advice, such as good restaurants to try (hey Southern Indiana people, check this one out), fun vacation spots, and where to drop off your dry cleaning. But when it comes to getting advice on how to raise your credit score? It probably shouldn’t come from your uncle Robert, who’s been through foreclosure three times in his 40 years of life.
Here are 4 really bad pieces of advice I’ve come across on my own Facebook feed:
1. Co-signing is good for your credit score
“If you want to raise your credit, co-sign on a loan for someone else” says Uncle Robert.
Here’s the issue with this one- Would you play a lottery that, if you win, you get $5, but if you lose, you owe $100? I would certainly hope not. When you co-sign on a loan for someone, their on time payments may boost your credit by a couple of points over the period of the loan. Which is nice. But- if they can’t (or just won’t) make payments, that responsibility falls directly on you, and you’re legally responsible for your friend’s negligence. If you really want to help your friend, loan him or her some money to buy said item (but don’t loan any money if you expect to be paid back anytime soon).
2. Max out your credit card, and let it set for a while before paying it off / only make minimum payments.
Not only have I seen this one on Facebook, I’ve heard it directly from a credit union office intern- yikes!
Your Credit Score is based on five various factors, the largest of these (which also influences your score by approximately 35%) is your payment history. You need to utilize less than 20-30% of your available credit every month, AND pay off that sum every month as well.
For example, lets say you have 5 Credit cards:
- Card 1- Limit of $300
- Card 2- Limit of $1,000
- Card 3- Limit of $500
- Card 4- Limit of $3,500
- Card 5- Limit of $300
You have a total limit of $5,600. The most credit you should actually utilize every month is between $1,120 (20%) and $1,680 (30%). Some people say it doesn’t matter which cards you max out, so long as you stay below your 20-30% threshhold. This is true, to an extent. If all 5 of your cards report to all 3 credit bureaus (Equifax, Experian, TransUnion), you can do this without issue. If they don’t all report to all the Credit Bureaus, it can easily look like you’re over utilizing your cards. So, to play it safe, I would recommend staying below the 20-30% on all your cards if at all possible.
If you must go above your 20-30%, Pay off the majority of your charge BEFORE it is due. By doing this, your high utilization will not be reported to the credit bureaus.
Additionally, it’s important to note that having a 0% utilization does not help, nor hurt, your score. That’s like giving your friend $50 bucks to play in the stock market on your behalf, and he never invests it, he’s just keeping it safe in his bank account. He’s not bad at investing, but he’s also not good at it either.
3. Checking your score lowers it.
Your credit can get checked in two ways- by a hard inquiry, or by a soft inquiry.
Hard inquires come from credit card companies, department stores, and banks when you apply for a credit/charge card. They also come from lenders when shopping for a loan- such as car dealerships, banks, and mortgage companies. These inquiries can temporarily drop your credit, typically 2-5 points per inquiry. The small drop in points lasts for one year, while the inquiry itself can stick around for two years. Any institution that wants to do a hard inquiry (also known a hard pull) has to have your written consent first.
Soft inquires come from background checks. This can be insurance companies, landlord background checks, job related background checks, or credit card background checks (which is usually called pre-approval). These do not affect your credit score, and do not need your written consent to be pulled. They also do not impact your credit score, though they may occasionally show up on your credit report. You checking your own credit via an app like Credit Karma or Credit Sesame, is just a soft inquiry.
4. You can’t get a credit card without having a credit score.
You can! Though typical credit cards may not offer you credit cards so easily (they may charge an annual fee or really high interest), secured credit cards do not.
A secured credit card is a card that you can typically acquire through a credit union or certain banks. If for example, you’d like a credit limit of $500, you’d save up $500, and put it into a secure card. You cannot touch this cash once its in place. Your secured credit card should then be treated like any other card- utilize less than 20-30% every month, and pay it off monthly. The purpose of this card is to protect the bank or credit union from getting stuck with your bill, which in turn protects you from annual fees and high interest rates. After you’ve established trust with the lender, you can sometimes get your secured money (your upfront $500) back, or even raise your credit limits. To learn more about secured credit cards, check out New Horizon.
Want to avoid making silly credit mistakes, or better yet, raise your credit score for the price of postage? Check out this post!
– What bad advice have you heard when it comes to your credit?
– Actually, what bad advice in general have you found on Facebook?
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