BATON ROUGE — When it comes to credit scores, there’s no shortage of advice online. In fact, some of the most searched financial questions on Google over the past year have centered on credit, from how it works and how to improve it.
To separate fact from fiction, UWK partnered with Neighbors Federal Credit Union to break down some of the most common misconceptions about credit scores.
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Myth: Closing a credit card will always hurt your credit score
According to Neighbors Financial Wellness Director Kim Chapman, the answer depends on your specific situation.
Chapman said credit is highly individualized and one key factor is the age of the account.
“If it’s an account you’ve had for a long time, closing it may shorten your credit history, and that can have a negative impact,” Chapman explained. “Credit cards also play a big role in credit utilization, which makes up about 35% of your credit score. Closing a card reduces your available credit, and that can lower your score.”
But Chapman said there are times when closing a card might actually make sense.
“If you know you’re going to fall back into the trap of spending, especially if you’ve created a plan to pay it off, it may be better to close it and take a small drop in your score,” she said. “Those points can recover over time.”
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Myth: You need to carry a small balance to help your credit score
Chapman said this is one of the most common myths she hears.
“You do not have to carry a balance,” she said. “It actually works to your advantage to keep your balances low. Paying off your credit card every month also prevents you from having to pay interest.”
Instead, Chapman recommends focusing on credit utilization. “You want to stay under 30% credit utilization. So if your credit limit is $1,000, that means keeping your balance below $300. And really, the lower the better.”
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Myth: Having a balance matters more than paying on time
When it comes to building strong credit, Chapman said payment history is the most critical factor. “Paying on time is at the heart of your credit report. That’s what lenders are really looking at.”
Chapman explained that having a balance isn’t necessarily damaging.
“Sometimes that’s life,” she explained. “We can’t always avoid having debt. But if you miss payments or you’re not paying on time, that can really tank your score and make it much harder to recover.”
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Myth: There’s a quick trick to boost your credit score fast
Chapman said there’s no magic trick to fixing a bad credit score.
“There’s not one thing you can do overnight that fixes everything,” she said. “Credit is really slow and steady.”
Instead, she recommends focusing on three basics:
- Pay bills on time
- Keep balances low
- Avoid opening a lot of new accounts at once
“A mistake people often make when they think they’re building credit is opening a lot of new accounts at one time,” Chapman said.
How quickly can your credit score recover? Chapman said some improvements can show up relatively quickly.
“Paying down debt can sometimes show up the next month and have a positive impact,” she said.
But other issues take longer to repair.“Late payments take time. If you’ve been on time for 12 months and you miss a payment today, it can take another 12 months of on-time payments to rebuild that history.”
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Myth: Credit scores bounce back quickly after negative marks
Chapman said many people underestimate the impact of interest rates.
“People think, ‘I can make the minimum payment, $10 is nothing,’” she said. “But you could end up turning a $100 purchase into paying back $1,000 over time just by making minimum payments.”
That’s one reason Neighbors offers free financial counseling.
“Our counselors can show you the numbers and the science behind why certain financial strategies work,” Chapman said.
Through Neighbors’ Blueprint for Financial Success program, counselors help build a plan around personal goals.
Click here to start your Blueprint for Financial Success.
Editor’s Note: This article is part of a sponsored segment paid for by Neighbors Federal Credit Union.
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