It is important for consumers to understand how your credit score works. Since, not understanding how credit scores work can actually hurt your credit score. Your credit score can affect your financial future and you need a good credit score to get the lowest interest rates on future loans.
Stack of credit cards and dollars.
Most consumers understand that bankruptcy or foreclosure is going to negatively impact their credit score for seven years, but there are plenty of other small mistakes a consumer can make that can turn a good score of 750 or higher into a mediocre 680.
One mistake people make is thinking that carrying a monthly balance on your credit card statements helps improve your credit score. The truth is that you can build a great credit score without carrying a balance and paying interest on your purchases, according to consumer advocate Clark Howard.
The smart and responsible way to use credit cards is to have a budgeted amount that will go on your credit card each month and pay your bill in full each month. Clark Howard also recommends that consumers do not charge more than 30% of your available credit card balance. Preferably, keep it below 10% if you want to boost your credit score quickly.
According to Clark Howard, your payment history makes up 35% of your FICO score and it is important to understand this fact when bills are due. Consequently, you can attain a good credit score by paying your bills on time and keeping a low credit card balance.
References:
- Howard, Clark, Big mistake can hurt credit score, The Atlanta Journal-Constitution, October, 1, 2020, pg. D1
- https://finance.yahoo.com/news/7-small-mistakes-that-will-hurt-your-credit-score.html