The Myths of Getting Perfect Credit
Here are a few myth’s about what NOT to do to perfect your credit. These are the ones that I’m constantly ‘blowing up’ with my clients and seem to be so pervasive.
Myth #1: Close all of your credit cards once you become debt free.
Big mistake!
15% of your credit score comes from the history of your accounts. A big part of this 15% is how long you’ve had credit. Once you close your oldest account, your history moves up to the next oldest open account. It’s a lousy system and should look at all of your accounts over your credit history, but that would be too logical, so we have to play by their rules.
A client of mine in his 60’s did this BEFORE he came to me for help and his perfect credit score of 750+ dropped to 675 within months after becoming debt free. It was because he listened to the advice of some ‘know it all’ and closed all of his credit accounts, some of which were over 20 years old.
Myth #2: Having low interest rates on your credit cards helps improve your score.
False. Your interest rate has no bearing whatsoever on your credit score. I think this was originated by some creditor offering 0% interest programs who wanted to scam clients into
signing up for the offer since they said it would help their credit and cost them nothing with the 0% rate.
Myth #3: Your score goes down when you have a late fee penalty.
This is almost true. Most creditors charge a late fee the day after the payment is due if they haven’t received your money yet. Mortgage lenders are more generous and give a 15 day grace period before slapping you with the penalty. The truth is though that you have a 30 day grace period with the credit bureau’s before your score is affected.
One way to wrap your head around this is if your next payment is due by May 1st and you don’t pay it on or before then. With the credit bureau, that May 1st payment must be received by the creditor before June 1st, otherwise, the creditor tells them that the payment is now ‘30 days late.’ The 30 day late is what shows up on your credit report and causes your score to drop. There are 60 and 90 day milestones, too, both being even worse for your credit score.
Please don’t use this as an excuse to push the limit on late payments, but realize that you do have some grace period before your score is hammered.
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