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After looking around on YouTube and Google recently, I decided to make this article because I keep seeing some credit misnomers and misunderstandings repeated. Here are the top 10 things that are commonly seen on the internet that could have you looking in the wrong place to improve your credit.  

Misunderstanding 1: Inquiries make up 10% of your credit score  

Inquires are not 10% of your FICO credit score. “New Credit” makes up 10% of your credit score, and inquiries are a part of this. But the more important part is the age of your newest account and how many new accounts you have.   

More info: Inquiries are a minor part of your credit score in nearly all cases. The easiest way to improve the New Credit factor of your credit score is by doing. If you have several recent inquiries and new credit accounts, all you need to do is wait a few months. This will make the inquiries even less important and increase the age of your new accounts, allowing them to become an established part of your good credit history.  

Misunderstanding 2: Credit Card Utilization makes up 30% of your credit score

What makes up 30% of your credit score is “Amount of Debt.” Credit card utilization is only a part of it, but it often takes up most of the discussion because your credit card utilization is the most discussed part of your “Amount of Debt.” The amount of debt includes credit card utilization, loan utilization, and credit card balances, loan balances, and the total debt you have. 

More info: Credit Card utilization is very important to your FICO credit score and it’s even more important for your VantageScore score, but lowering your overall debt is just as important. Try to reduce your debt balances as you can, being sure to pay all of your bills on time. Apply extra debt payments to your credit cards when possible to reduce your utilization and your debt.  That will help your credit score.  

Misunderstanding 3: Good payment history means not being late on payments

Not being late on your payments is only part of a good payment history. What’s more important is a history of being on-time! That may sound like the same thing, but it’s not. If you currently don’t have access to credit, then you’re never late, but that doesn’t get you a good score. Only making payments against credit accounts that are reported to the credit bureaus will count towards building a good payment history. Building that good payment history isn’t hard, though: make 3 to 5 payments on time every month, that’s a good payment history. 

More info: Payment History means everything that has to do with your bills. This factor looks at multiple things. First, are you currently behind on any payments? It also looks to see how often you’ve been late on your payments and how recently. And don’t forget that for credit score purposes, it’s not considered late until it’s 30 days past due. However, to build a truly good credit score, you need a large number of on-time payments on your credit report. It’s best to have 3 or more accounts that are receiving on-time payments every month to build your credit. Credit cards are good for this because you can make a purchase and pay the bill without paying interest.

Misunderstanding 4: You need a lot of different forms of credit 

Credit mix can account for 10% of your credit score. But it really only looks to see if you have experience with both installment and revolving credit. If you don’t have revolving credit, you should probably get a credit card and use it wisely. If you don’t have any student loans, mortgages, auto loans, or personal loans then Great! Don’t get one just for your credit score, you can easily have a 750 or higher score without loans or being in debt.

More info: Credit mix could be considered the “bonus” factor in your credit score. It’s not one that you should focus on. Paying your bills on-time every month and keeping your debts low will give you a great credit score. Credit mix is important if you want an 850 credit score, but an 850 credit score is a waste of time. A credit score of 780 or higher is good enough to get the best rates on any type of credit. It’s considered super prime.  There’s no bonus of having an 850.  

Misunderstanding 5: Length of credit history is how long you’ve had credit

Believe it or not, “length of credit history” doesn’t actually mean “how long you’ve had credit.” This is about how long you’ve had your OPEN accounts. The age of your oldest open account, newest open account, and the average age of all open accounts are key. Also included here is how long since the account has been used. Unused revolving credit accounts are sometimes ignored in your credit score if they have not been used in a long time.  

More info: This is another credit factor where credit cards can really help you. Have a couple credit cards with no annual fee, use them once a month, and pay the bill. Keep them forever. That will improve your oldest account age and your average account age. Your newest account will always depend on when you need to get new credit, so don’t focus on it. But only get the credit you need.  

Misunderstanding 6: Your revolving credit utilization should be 30%

We’ve all heard the statement that you need to keep your utilization under 30%. It is repeated so often that you would be forgiven for thinking that it is a law of nature, just as certain as gravity. But, the imaginary line of 30% utilization isn’t any more significant than an imaginary line at 35% or 42% or any other number. 

Your revolving credit utilization should be as low as possible. Not sure who coined 30% as a target but that’s terrible. If you’re at 80%, you don’t need to drop to 30% to improve your credit. Dropping to 70% will add 10 to 15 points to your credit score. Even worse, if you’re at 25%, don’t pay interest and increase your debt to 30%. Dropping to 15% will add 10 to 15 points to your credit score too!!

More info: The 30% utilization rate goal may be some of the worst guidance ever. It was coined as a simple way to know if you’re doing ok when it comes to utilization rate, but the negative impact is terrible. For people with about 30% utilization, it makes you feel good even though you’re paying interest on your credit cards, even though you could pay off the balances and save money. For people with higher utilization, it’s discouraging because you don’t feel like that goal is attainable, when any reduction in utilization rate will help you with your credit score and reduce your interest paid! When it comes to utilization rate, lower is better! 

Misunderstanding 7: All credit scores are the same

A lot of the rules of thumb about how much utilization or new credit or credit history affect your credit score are almost always describing FICO credit score models. But the free scores you get from places like CreditKarma are VantageScore credit scores. Both are used to classify credit risk for lenders. But that doesn’t mean that the scores are calculated in the same way. VantageScore does not provide percentages and doesn’t even use the same classifications. 

Even though the models are different, things that make for a good FICO credit score also make a good VantageScore credit score. Hence, it’s important to not get too wrapped up in the percentages. 

More Info: There are dozens of different common credit scores that lenders use. On top of that, most lenders also have private credit scores they create for themselves. All of these scores are similar and have a common goal, to determine who lenders can lend to so that the loans will be repaid. 

Misunderstanding 8: Credit Scores measure you and your credit risk

Credit scores don’t actually measure your responsibility as a person or even your personal risk of defaulting on a loan. 

Credit scores classify risk across a group of people. Your credit score places you into one of those groups. Some people in that group will be more likely to default and others will be less likely to default. The models are meant to actually predict how the group as a whole will perform. 

Today’s statistics 101 lesson: It’s impossible to measure an individual with a statistical model. You can accurately predict the results of a large group of people but you cannot predict the outcome of any individual within that group. For example, a credit score model could accurately predict that 1 or 2 people out of 100 with a credit score between 680 and 720 will default on a loan. But will that one be Tom or Frank? Maybe Jill or Sophie?  No one knows.   

More Info: Credit scores are not magic. Credit scores don’t predict your future. Lenders use these credit scores to classify people into risk buckets and then approve or decline these groups for credit. That means your credit score does make a difference in what credit you can access, but you should not take it to mean too much. Better credit scores lead to better credit access, but they are not personal judgment on you. 

Misunderstanding 9: Credit Bureaus create your credit score

You might get your credit score from Experian, Equifax, or TransUnion, but none of those companies actually create the credit score. Those companies gather and maintain the data on which credit scores are built, but they don’t actually calculate the credit scores. The most common companies that create credit scores are FICO and VantageScore. FICO and VantageScore use the data in your credit report at the credit bureaus to calculate your credit scores. Credit Bureaus manage those credit reports and provide the credit scores calculated by FICO and VantageScore to you and to lenders when you apply for credit. 

More Info: This is a common misconception because you receive your credit score from the credit bureaus.  But credit bureaus are only an intermediary for your credit score.  Think of it like buying something from Amazon, they sold the item to you, but another company created it. 

Misunderstanding 10: You can fix your credit in 14 days with some magic dispute letters

When you are feeling the affects of a poor credit score, it is natural to want to find a way to quickly get back on track. But, regardless of how reasonable YouTube influencers sound, you can’t actually fix for your credit in 14 days by sending dispute letters. 

First, it usually takes 15 to 45 days for the dispute resolution process to be completed from start to finish. Credit bureaus aren’t obligated to even read your dispute letter in 14 days. There are numerous factors at work here so to see the impact in your credit score will take time. 

Second, if the information is accurate, it won’t be deleted. Errors will be corrected, accurate negative information will remain, all of the tips and tricks you see will fail 99% of the time. No trick, no special letter, nothing is going to change that.

More Info: The ability to dispute errors on your credit report is very important! But contrary to what numerous YouTubers and credit repair companies will tell you, you cannot simply dispute your way to good credit. The FCRA requires that inaccuracies be corrected or removed. However, the tricks and traps that are promoted simply don’t work most of the time. When you do find a minor inaccuracy on an account, that inaccuracy will be corrected. The account will not be deleted. 

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Nathan Foley