Myths And Tips About Your Credit Score

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by Anne Middleton, on April 14th, 2016

How is your knowledge on the basic facts about your credit score?  Do you know what credit score range constitutes a good credit score? Generating a good credit score is achieved by paying bills on time, reducing balances and applying for credit only when you need it. Just because you “want” to make a purchase (big or small) doesn’t mean you “need” to purchase it.  Discretionary spending is a key component of establishing a good credit score.

What is a Credit Score?

For the most part, credit scores are designed to evaluate how big of a risk it would be to lend you money. If your score is low, it’s because your credit history suggests that there’s a higher risk that you’ll default on a debt. It doesn’t mean anyone thinks you’re a bad person.

Credit reports are compiled by the three major credit reporting agencies (CRAs) namely Equifax, Experian and TransUnion. Credit reports and credit scores include credit card and loan payments, credit inquiries, collection records and public records (such as bankruptcy filings). Each account listed will show your payment history.

Credit Score Range

FICO is the most widely used model so that’s really the place to start. Your FICO scores are calculated using the information in your credit reports.  These reports contain the information that each credit bureau has on file about you.

The standard FICO credit-scoring scale goes from 300 to 850, with higher numbers reflecting better credit.

• Excellent Credit Score: 800-850
• Very Good Credit Score: 750-799
• Good Credit Score: 700-749
• Problems start from the next level down.
• Fair Credit Score: 650-699
• Poor or Bad Credit Score: 600-649
• Very Bad: 300-599

If you are considering applying for a Visa or other debit or credit card, you will be required to have an established credit history and meet the bank’s minimum criteria.

With over 329 million cards issued and over 50% of card holders using Visa credit and debit products, Visa is now the largest credit card network.  Remember, Visa does not actually issue the cards. Rather, Visa provides financial institutions with Visa-branded credit and debit programs. There are different types of Visa cards.  Whether you’re looking for traditional benefits or premium rewards, Visa can provide you with the optimum plan to meet your needs through your bank or other approved financial organization.

Myths and Truths

Here are six simple myths, truths and tips to provide you with the tools to better manage your credit and build a good credit score.

1. Myth: Believing you have a good credit score is enough.
    Truth: Believing and knowing your credit score range are not the same things. Just because you had good credit five years ago doesn’t mean you do now. Make sure to get copies of your free annual credit report from all three major credit reporting agencies every year and review the report carefully for any errors or red flags.

2. Myth: You only need to check one credit reporting agency.
    Fact: The three major credit reporting agencies are private, for-profit companies and they don’t share information with each other. That means there can be a mistake on your credit score range on one report but not another. Experts suggest that when you need to check your credit, check all three CRAs. You are entitled to one free annual credit report from each national credit reporting agency.

3. Myth: Your income affects your credit score.
    Truth: The amount of money you make can only affect your credit score if your income affects your ability to pay your bills. Your income itself, however, is not listed on your credit reports, nor is it a factor in your credit score. So it has zero impact on whether or not you have a good credit score.

4. Myth: Eliminating a debt means it is erased.
    Truth: Paying off a debt means you’ve removed your financial obligation, but the evidence of that debt can stick to your credit score for years. If you’ve been chronically late, missed payments or defaulted entirely, that becomes a problem. Most negative information can remain on your report for up to seven years; some bankruptcies can stay there for up to 10 years.

5. Myth: Improving your credit score range is nearly impossible.
    Truth:  Payment history is 35% of the FICO Score calculation, so this category has the greatest effect on improving your credit score range. Be sure to pay your bills on time since delinquent payments of even just a few days late can have a major negative impact on your FICO Scores.

If you have missed payments, get current and stay current. The longer you pay your bills on time after being late, the more your FICO Score should become a good credit score. Recent positive payment patterns show up on your credit report and shows you're managing your credit well.

6. Myth: Closing a credit card account will improve my credit score range.
    Fact: Closing an account doesn't make it go away. A closed account will still show up on your credit report. In fact, closing too many cards at once can actually cause your score to drop.

You will be just fine, however, if you remember this simple formula: Use a credit card, pay it off on time and carry no balance from month to month. By following these steps, you will achieve a good credit score whether you are using a Visa or some other branded credit or debit card.  Monitoring your credit score range is important for every individual throughout their life.