Latest news with #credit scores
Yahoo
21-07-2025
- Business
- Yahoo
7 credit score myths you should stop believing
If you've ever learned anything about credit scores from a friend, a family member, or social media, I'm sorry to tell you this, but you may have some unlearning to do. In my past role as an NFCC-certified credit counselor and my cumulative 12 years working as a financial educator, I've heard some bizarre myths and rumors about credit scores, a few of which are really popular. Sure, myths can be fun. But when it comes to credit scores, they have major consequences. Some of the most commonly held myths can leave you with perpetually low credit scores and make it hard for you to qualify for mortgages or credit cards. Here are the most common and harmful credit myths I've come across, and the truth you need to know about each one. This embedded content is not available in your region. Top credit score myths debunked 1. Checking your credit reports lowers your scores When I encourage people to pull their credit reports, I tend to hear the same response: "Won't that hurt my credit scores?" The answer is a firm "no!" The truth is, pulling your own credit reports does not hurt your credit scores at all. In fact, if you don't pull and review your reports, you may never be able to build good credit. That's because reviewing your reports helps you with all of the following: Finding out what's in your credit file Discovering what needs to be improved Finding and disputing credit report errors Catching signs of identity theft You can pull your credit reports for free once a week at 2. You need to carry a balance to build good credit I wish I had a dollar for every time someone told me that carrying a 30% credit card balance (that's a balance equal to 30% of your card limit) helps you build good credit scores. The reality is that the lower your credit card balance is, the better for both your credit scores and your wallet. When you have low balances, you reduce your credit utilization ratio (the amount of credit you're using compared to your total available balance). The lower your credit utilization, the better it is for your credit scores because you're showing lenders that you don't need credit cards to cover your expenses. Additionally, if you pay off your full credit card balance by the monthly due date — which I highly recommend — you can avoid high interest charges. 3. I don't need to worry about my credit until I want a loan In my credit counseling days, I often got calls from people who wanted help fixing their credit ASAP. Often, it was because they had just submitted an application for a car loan, or made an offer on a new home. Unfortunately, I had to let them know that it usually takes months, and sometimes years, to clean up credit mistakes and build good credit. For example, even if you pay off your credit card today, it can take a month or more for the $0 balance to show up on your credit reports and be factored into your credit scores. And if you want to build good credit scores, it can take months or even years, depending on the condition your credit is in now. 4. Paying off collection debt helps your credit scores I receive several emails a month from people who are desperate to remove old collection accounts from their credit reports. The reason? They want to improve their credit scores — fast. Unfortunately, there's no guarantee that paying off a collection account will improve your credit scores. Here are a few credit score facts to keep in mind before you consider sending money to a debt collector: Medical collection debt under $500 has no impact on your credit scores. Paying off a collection account does not remove the account from your credit reports. Most credit score calculations do not make a distinction between paid and unpaid collections. That said, depending on the type of debt, you may want to pay off collection accounts anyway. It can stop debt collectors from contacting you or even taking legal action against you. However, if the debt is old and close to falling off your report (typically seven years from the original delinquency), paying may reset the clock on the debt. So, if you're unsure about how to handle a debt in collections, it's a good idea to reach out to an accredited credit counselor for guidance. 5. Disputing accurate information will improve your credit scores Most credit myths are a mix of truth and fiction, and this one is no different. Here's what's true: If you find an error in your credit reports, you have the right to file a dispute (for free) and get the information corrected or removed. But you do not have the right to get accurate information removed from your reports. Unfortunately, some people view the dispute process as an invitation to try and remove any negative information, even if it's accurate. In fact, there are credit repair companies that charge money to dispute correct information on your behalf. If you do dispute correct information, there's a chance it will be removed from your reports while the credit bureau investigates your claim. But once they confirm that it's accurate, the information will reappear on your reports. 6. A good credit score means you're rich Wealth doesn't impact your credit scores, at least not directly. Yes, your income level can impact how much money you borrow, whether you're able to repay loans and credit cards, and other behaviors that affect your credit. However, your income is not a factor in determining your credit scores. In fact, even if you're considered rich, but you don't pay your debt on time, you will have poor credit scores. 7. Bad credit history follows you forever As a credit counselor, I spoke to many people who believed that a bankruptcy or foreclosure from the '80s or '90s was still damaging their credit. While events such as bankruptcy, foreclosure, and repossession will cause severe damage to your credit scores, the damage only follows you for a limited time. Here's a breakdown of the timelines: 7 years: Missed debt payments (at least 30 days late), vehicle repossession, home foreclosure, and Chapter 13 bankruptcy. 10 years: Chapter 7 bankruptcy and positive credit information As negative information gets older, it has less of an impact on your credit scores. Once it's removed, it has no impact at all. Up Next Up Next
Yahoo
10-07-2025
- Business
- Yahoo
6 Ways a Personal Loan Can Help Millennials Boost Credit Scores
Millennials face unique financial challenges with student loan debt, housing costs and economic uncertainty affecting this generation disproportionately, many are looking for strategic ways to improve their credit profiles. Read Next: Find Out: The generation, aged 27 through 42, is not scoring far above Gen Z, with a 690 average, suggesting significant room for improvement compared to older generations who typically have higher scores. Personal loans can be a powerful tool for millennials to boost their credit scores when used strategically. Here are six specific ways a personal loan can help improve your credit standing and set you up for better financial opportunities. One of the most effective ways a personal loan can boost your credit score is through debt consolidation. Debt consolidation works by paying off existing debts with a new loan or balance transfer credit card, according to Experian. This can be a good strategy when you have multiple balances because it allows you to streamline your monthly payments, which can make getting out of debt more manageable. When you use a personal loan to pay off high-balance credit cards, you're essentially moving revolving debt to installment debt. This shift can dramatically improve your credit utilization ratio, which accounts for 30% of your credit score. Combining multiple credit cards with a debt consolidation loan could provide a large boost to your scores since it reduces your credit utilization ratio. For example, if you have $8,000 in credit card debt across multiple cards with a total credit limit of $10,000, your utilization ratio is 80%. By consolidating this debt with a personal loan and paying off the cards, your utilization drops to 0%, which can result in a significant credit score increase. Payment history plays the biggest role in your credit score, making up 35% of it, according to Faster Capital. Personal loans provide an excellent opportunity to establish a consistent track record of on-time payments, and debt consolidation loans could even benefit your credit score if you keep payments consistent, according to Lending Tree. As you pay off your debt, you'll reduce your debt-to-income ratio and demonstrate to creditors that you can make timely payments. Over time, this can boost your credit score. Unlike credit cards where payment amounts can vary, personal loans have fixed monthly payments that make budgeting easier. This predictability helps millennials build a strong payment history, especially those who struggle with variable income or budgeting challenges. Setting up automatic payments for your personal loan ensures you never miss a due date, protecting and improving your credit score over time. Credit scoring models favor borrowers who can successfully manage different types of credit accounts. Another factor of credit scores is the type of credit one has. Creditors like to see a diverse mix of both revolving and installment credit. Many millennials primarily have revolving credit (credit cards) and possibly student loans, but lack other forms of installment credit. Adding a personal loan to your credit profile creates a more diverse credit mix, which accounts for 10% of your credit score. This demonstrates to lenders that you can handle various types of credit responsibly, potentially boosting your score and making you more attractive to future lenders. Personal loans typically offer lower interest rates than credit cards, especially for borrowers with decent credit. Personal loan rates start as low as 7% for qualified borrowers, compared to credit card rates that often exceed 20%. This interest rate advantage serves two credit-building purposes. First, lower interest rates make it easier to pay down debt faster, reducing your overall debt burden and improving your debt-to-income ratio. Second, the money you save on interest can be redirected toward other financial goals or building an emergency fund, creating a more stable financial foundation that supports long-term credit health. For younger millennials or those with limited credit history, a personal loan can help establish a longer credit history timeline. The length of your credit history accounts for 15% of your credit score, and having accounts that remain open and in good standing for extended periods benefits your score. Personal loans typically have terms of two to seven years, providing a multi-year opportunity to demonstrate responsible credit management. As the loan ages and you maintain good payment history, it becomes increasingly valuable to your credit profile, especially if you have limited credit history from other sources. For millennials dealing with past credit mistakes, a personal loan can aid with repair. If you can lower interest rates and payments through debt consolidation, your credit score will be less likely to be damaged due to a better shot of meeting your monthly payment, per Equifax. By consolidating multiple debts into a single personal loan with a clear payoff timeline, millennials can regain control of their finances and establish new positive payment patterns. This approach is particularly effective for those who have struggled with credit card debt or multiple payment obligations that have become unmanageable. While personal loans can be powerful credit-building tools, millennials should be aware of potential drawbacks. Simply applying for a personal loan or balance transfer credit card will result in a hard credit inquiry from the lender, docking your credit score a few points, according to CreditKarma. However, this temporary dip is usually offset by the long-term benefits of improved credit utilization and payment history. Additionally, if you want to qualify for one of the best personal loans, you typically need good or excellent credit (600 and higher), though some lenders work with borrowers who have fair credit. Millennials should shop around and compare offers from multiple lenders to find the best terms available for their credit situation. Personal loans can be an effective credit-building strategy for millennials when used responsibly. The key is to view the loan as a tool for financial improvement rather than additional spending power. By consolidating high-interest debt, establishing consistent payment history, and diversifying your credit mix, a personal loan can help bridge the gap between where your credit stands today and where you want it to be. With millennials (many of whom are now entering their 40s) saw a 10.4% increase in personal loan balances, it's clear that this generation is already utilizing personal loans as part of their financial strategy. When approached strategically, these loans can be a steppingstone to better credit scores and improved financial opportunities. More From GOBankingRates 7 Luxury SUVs That Will Become Affordable in 2025 This article originally appeared on 6 Ways a Personal Loan Can Help Millennials Boost Credit Scores Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
