Credit scores: Sorting truth from fiction

By Megg Mueller

There are numerous factors that go into your credit score, so sorting myth from fact on this topic is no simple matter. But to fully take control of your credit history, it's vital that you understand the things that can help your score and the things that can harm it -- as well as the things that make no difference.

Read on to learn which factors matter when it comes to protecting your score.

How to sabotage your credit score

Perhaps the worst type of credit-score misunderstanding is the seemingly good deed that ends up hurting you.

One counter-intuitive way to negatively impact your credit is to close a credit card account. While it may seem odd that closing a card could hurt you, having available but unused credit at your fingertips is a positive thing for your credit score. Because closing an account reduces your amount of accessible credit, it's often best to avoid it.

You should particularly avoid closing cards that you've had for a long time. Yes, your first credit card from college may have an awful interest rate and offer little to no rewards. But if you close it, in addition to reducing your available credit, it can also shorten your credit history -- another factor that credit-reporting agencies take into account when factoring your score.

So how do you raise your credit score?

Opening a bunch of accounts is not the answer, especially if those accounts are mismanaged. The Federal Reserve offers these tips:

  1. Know your score: Review your credit report at least annually and verify all the information contained in it. The website at AnnualCreditReport.com is the only federally authorized site to get a free report each year. The free reports offered here don't indicate your credit score, however, so be prepared to pay a small fee if you'd like to view that information.
  2. Pay all bills on time: Consistent, on-time payments is one of the most straightforward ways to improve your score.
  3. Correct any wrong information in your report: If you find any details that you don't recognize on your report, be sure to take up the matter promptly with the credit-reporting agencies. Mistakes and fraud do happen, so it's key that you review things carefully.

Two non-factors

While these two things are sometimes believed to affect risk-model-based credit scores, they actually have no impact:

  1. Paying bills before the due date. If a late payment can harm you, shouldn't an early payment help you? Unfortunately, most credit scoring systems don't take into account whether a payment was made before the due date -- only whether it was made on time.
  2. How much money you make. Yes, certain lenders will ask how much you make to determine your creditworthiness for a loan. But that's largely because credit reporting bureaus are looking primarily at your payment history rather than your income, which means earning more or less money shouldn't affect your score on its own.

Finding the right card to build your score

To build the strongest credit score possible, it's helpful to choose a credit card that closely matches your needs.

For college students looking to grow their credit history, cards such as the Discover Student More Card might be appropriate. The Open Road card is especially suited for students who spend a lot at restaurants and on gas, as it offers attractive rewards in these categories. It also has no annual fee.

If you've struggled with credit problems in the past, there are a number of cards for people with bad credit that may appeal to you. If you're looking to rebuild your history with your new card, be sure to pick a card that reports regularly to the three credit reporting bureaus.

Many student and bad-credit cards carry higher interest rates than other cards, so use them carefully and pay your balances off quickly. You may also want to switch to a lower-interest card once you've established the credit history to do so.

Megg Mueller is a journalist with almost two decades of experience. She has worked as a reporter and editor for the Reno Gazette-Journal and as an editor of health care and education manuals for Aspen Publishers, a subsidiary of Wolters Kluwer. She wrote a weekly column on the hotel industry during her tenure as assistant travel editor for USA TODAY.com. Mueller is the editor of a tourism-based website and also serves as a reporter for a weekly business newspaper.

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