Your credit score can tell lenders a lot regarding how you handle money and debt, and your likelihood to make payments on-time.
Many of us don’t have excellent credit, and that’s okay—there are ways to improve it. But there is a lot of misinformation out there when it comes to credit repair. These credit repair myths do more harm than good because they make you focus on things that have little importance—or that could actually be harmful—instead of on the things that will actually have a positive impact on your score.
If you have a less than perfect credit history, you’re definitely not alone, but when you’re looking to boost your improve or repair your credit score, you’ll want to understand why these common credit repair myths aren’t entirely true.
Credit repair myth #1: Opening many lines of credit will increase your credit score
While having a handful of credit accounts on your report shows you can juggle the responsibilities of multiple bills, adding more than a few lines of credit won’t necessarily help your score. If anything, too many lines of credit create unnecessary risk—and may actually hurt you.
When you apply for a new loan or credit card, the bank does an official credit inquiry or “hard pull” on your credit report. The credit bureaus keep a record for two years of hard pulls on your credit report. If you receive too many of those hard pulls in a short amount of time, they begin to negatively affect your credit score because lenders believe you’re looking to overextend yourself. Keep in mind, a hard pull is different than the “soft pulls” used by apps like Credit Karma or Credit Sesame. Soft pulls do not affect your score.
Be careful about applying for credit if you know your credit score isn’t perfect. Research the kinds of credit cards you can get with your credit score before you apply to avoid ending up with another hard inquiry but no new approved account.
One last reason more lines of credit is not always better? If multiple lines of credit tempt you to spend more, you could likely get in over your head. To add insult to injury, your utilization ratio—the ratio of your credit card balances to your overall credit limits—will go up. A high utilization ratio signals the potential that you’re overspending, which is why it’s one of the fastest ways to drag down your credit score even if you’re making all of your payments on time.
Credit repair myth #2: Closing credit accounts will increase your credit score
Not necessarily. Closing all of your accounts may seem like a way to boost your credit score because you won’t be over-spending, but it can actually hurt it. A credit score is partially determined on how the borrower handles debt. If the accounts are closed, there is no way to generate that number.
Not only that, but closing accounts will eliminate your credit history after a certain amount of time (seven years to be exact), and the length of your credit history is a key factor in determining your score
If you’re looking to repair your credit score, sometimes it’s best to just pay off your accounts and leave them open if you can. In some cases, you will have to close your account. For example, if you decide to work with a debt repair agency, they may help negotiate a lower interest rate or payoff amount with your credit card company, but in return you’ll be asked to close your accounts when you’ve paid all your debt back.
If you’re paying off a ton of credit card debt on your own, an alternative option would be to keep your accounts open but only utilize one card.
Or consider a balance transfer card, that’ll help you consolidate debt and pay it off within the 0 percent interest rate offer.
Related: A Balance Transfer Card You’ll Actually Want To Keep
Credit repair myth #3: You can increase your credit score by removing negative accounts
It’s true: Removing a collections account or an account with a late payment from your credit report will have a positive impact on your score. Trouble is, there’s no real way to “remove” a legitimate account other than wait a very long time.
Even if you pay off those bills that have gone to collection agencies, the information will remain on your credit report for about seven years.
If you have negative marks against your credit score, the best road to take is to continue paying your monthly payments accordingly to responsibly eliminate the debts that have gone to collections. Your credit score will rise slowly, but do not anticipate an immediate jump in numbers once you’ve paid the collection agencies.
Watch out for anyone trying to sell you a service that will remove negative information from your credit score. The only situation in which a credit bureau might immediately remove or alter an account from your report is if you can prove the account never belonged to you or contains errors.
Credit repair myth #4: Paying off loans early will boost your credit score
You might think that paying off a car loan, student loan, or mortgage will increase your credit score. This isn’t entirely true.
Creditors don’t really care if you pay off a loan early. (Actually, they might, because they get less of your money). They can’t punish you for pre-payment, but the credit reporting system doesn’t give you any extra credit for pre-paying, either.
There is, however, one situation in which early credit card payments may increase your score.
If you pay all (or a substantial portion) of your credit card balance before the end of your billing cycle, the balance reflected on your next billing cycle will be at or close to $0. This will reduce your credit utilization ratio, which nearly always leads to an increase in credit score. Keep in mind that making a payment before your credit card’s due date won’t have this affect—you need to make the payment prior to end of the billing cycle.
If you want get in the habit of paying your credit card balance down right before the billing cycle closes each month, you’ll enjoy a higher credit score on an ongoing basis. This is a good strategy to use right before applying for a car loan or mortgage as it’s an easy way to make sure your credit score is as high as it can be when you apply.
Building a good credit score takes time—there are very few shortcuts. The good news is, you don’t have to spend hours “fixing” your score.
Just follow the basics:
- Don’t apply for more than two or three credit accounts a year, if you can help it.
- Pay every bill on time.
- Keep your credit card balances low in relation to your credit limit.