Building your credit consists of making timely payments and paying off your debts. The sad truth is that it takes time to get good credit. There are no easy ways. There are no shortcuts. Yet there are many misconceptions out there on how to raise your credit score fast. In this post I’m going to try and dispel some of the most common yet bogus credit building tactics.
Getting rid of your credit cards
It might make sense that if you have bad credit, getting rid of your credit cards will improve your score. This is simply not true. Your oldest credit card is your best friend. Do not cancel this card. The longer you have it in good standing the better it is for your score.
Too many accounts
If you have been denied credit because you have little or no credit, opening up multiple accounts is not the solution. If you were denied credit because you were deemed risky, you might think you need to open up several accounts to prove you are reliable. However opening too many accounts too soon has a negative impact on your credit score. It will give the impression that you are desperate for money.
Paying off delinquencies
You may think that paying off and closing an account will make it go away. This isn’t true. While the debt goes away it will remain on your credit report, even if it is paid off. These paid off items will stay on your report for 7 years. You can’t just make them go away by paying them off and closing them.
If you check your credit report you’ll find that many different companies check your credit. Many of these are credit card companies who check your credit to send you offers in the mail. You might think that if you opt out that your credit score will improve. That’s not true because these credit inquiries do not hurt your score in the first place. These types of inquiries (as well as the ones you do yourself) are soft inquiries. Only hard inquiries like attempting to apply for an auto loan affect your credit.
Paying loans early
While it is true that paying off a loan early boosts your credit score, having that open account in good standing is even better. Having a loan showing as current is good because it shows that you are currently being responsible with your debts.
Some people think that those who have good credit (score of 700+) must have a clean report. This is also not true. In fact, you could have a bankruptcy on your credit report and still have a score of 700+. You could have defaults and outstanding debts as well. The key here is the age. The older the problem the less impact it will have on your credit. This means that if you have a 5 year old debt, paying it off will not help your score all that much.
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