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    as long as you do not have any debt, you will have a high credit score.

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    Why is My Credit Score Low if I Have No Debt?

    Credit scores can be confusing, especially when you don't understand why it's low in the first place, and have no debt! Here's what you can do.

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    Why Is My Credit Score Low if I Have No Debt?

    Credit scores can be confusing, especially when you don't understand why it's low in the first place, and have no debt! Here's what you can do.

    By Kali Hawlk

    Updated: Nov 29, 2021

    It was about a year after getting my first credit card. After using the card to make small, necessary purchases (like gas and groceries), I had dutifully paid off my balances before my bill was due each month.

    I never carried a balance — and I’d never had a cent worth of debt to my name. I was proud to build my credit and establish myself as a financially responsible, creditworthy adult, and fully expected it to reflect in my credit score.

    But when I saw my credit score for the first time, I was disappointed. It was lower than I thought it would be. Why was my credit score low if I had no debt?

    The most obvious answer was that my credit history was just not long enough.

    This wasn’t, however, the only reason my credit score was much lower than I expected.

    The Importance of Keeping a Low Credit Utilization Ratio

    The credit limit on that single line of credit in my name was just $300.

    I regularly put more than $200 worth of charges on the card each month between gas, groceries, and personal items like toothpaste.

    This caused my credit utilization ratio to skyrocket well over the recommended 30%, which kept my score low.

    As soon as I realized this, I applied for a second credit card, which increased my overall available credit. I kept my spending at the same level, so my credit utilization actually went down.

    When I increased my available credit but kept my use the same, my score increased.

    It’s been in the excellent range ever since -- but it would have stayed low had I not investigated why my credit score was low even without debt.

    How “No Debt” Can Lead to a Low Credit Score

    This makes more sense if you understand what goes into determining your credit score. FICO scores are the scores 90% of lenders use when checking credit, so these are the most important to understand.

    There are five factors that help FICO calculate a specific credit score for you:

    FICO Credit Score Factors and Their Percentages

    FICO credit score factors Percentage weight on credit score: What it means:

    Payment history 35% Your track record when it comes to making (at least) the minimum payment by the due date.

    Amounts owed 30% How much of your borrowing potential is actually being used. Determined by dividing total debt by total credit limits.

    Length of credit history 15% The average age of your active credit lines. Longer histories tend to show responsibility with credit.

    Credit mix 10% The different types of active credit lines that you handle (e.g., mortgage, credit cards, students loans, etc.)

    New credit 10% The new lines of credit that you've requested. New credit applications tend to hurt you score temporarily. Learn more about FICO credit score

    Your actions and activity in these specific areas influence where your credit score falls on the scale, which ranges from 300 to 850.

    Anything below 560 is considered very bad credit, and you likely won’t qualify for many lines of credit or loans.

    If your score exists in the 560 to 650 range, you have low or poor credit. In this range, you may still struggle to get approved for new credit.

    Once you get into the 650 to 700 range, which is considered fair or average, you’ll have more luck. Good credit is 700 to 750, and excellent is anything over 750.

    With good or excellent credit, you can qualify for most kinds of credit and get access to the best available interest rates. 850 is the absolute perfect credit score (though few people ever reach this level, so don’t feel bad if you’re not there).

    You don’t need the world’s best credit score to apply and get approved for the credit you want at a good interest rate.

    But a low credit score could hurt you. It could prevent you from accessing certain credit cards or loans, and when you can get approval, you’ll pay more for that credit or borrowed money thanks to higher interest rates.

    Let’s take a closer look at what causes low credit scores — even if you have no debt.

    The Biggest Reasons Your Credit Score Is Low

    Debt can lead to a low credit score, but it’s not just the debt itself that causes the lower score. Remember, your credit score is determined by those five factors listed above.

    Poor credit happens when you:

    Make late payments Miss payments Default on loans

    Have accounts sent to collections

    Hold large balances on your accounts

    Open multiple new lines of credit in a short amount of time

    Declare bankruptcy

    These actions are also consistent with having (a lot of) debt, which is why it’s easy to make the correlation that debt causes low scores. But you can still find yourself taking actions that drop your credit score without racking up debt at the same time.

    Your credit score may be low — even if you don’t have debt — if you:

    Frequently open or close accounts and lines of credit

    Generate lots of hard inquiries on your credit (which is easy to do, if you’re not careful when you shop around for a loan and want to see what lender will give you the best interest rate)

    Source : www.mybanktracker.com

    13 Credit Score Myths Debunked

    While establishing a good credit score is a vital piece of your financial picture, there are many common misconceptions about what affects it. Here is the truth behind 13 common credit score myths.

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    Does checking your credit score lower it? Plus 12 other common credit score myths debunked

    Does checking your credit score lower it? Plus 12 other common credit score myths debunked While establishing a good credit score is a vital piece of your financial picture, there are many common misconceptions about what affects it. Here is the truth behind 13 common credit score myths.

    Updated Mon, Nov 1 2021

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    Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We earn a commission from affiliate partners on many offers, but not all offers on Select are from affiliate partners.

    When it comes to qualifying for the best credit cards or even renting an apartment, your credit score matters.

    While establishing a good credit score is a vital piece of your overall financial picture, there are many common misconceptions about what does affect your credit score.

    Below, CNBC Select asked financial expert John Ulzheimer, formerly of FICO and Equifax, the truth behind 13 of the most common credit score myths. Here’s everything you should know about what makes that magic three-digit number go up or down.

    1. Checking my credit score lowers my credit score

    False. Though 93% of millennials are aware of their credit score, this is probably the most common myth. Monitoring your score helps you track progress when building credit, but it is important to check it the right way.

    Checking your credit score is considered a “soft pull,” which doesn’t affect your credit score. Actions, such as applying for a credit card, which requires a “hard pull,” temporarily dings your credit score.

    “If you’re checking it from a legit source, like the credit bureaus themselves, then it won’t hurt,” Ulzheimer tells CNBC Select. “If you have a buddy who works for a car dealership or a mortgage broker, and they pulled your credit as a favor, everyone is going to think you’re applying for credit and the inquiry could lead to a lower score.”

    You can check your credit score for free with most card issuers, using apps such as Discover’s Credit Scorecard and Chase’s Credit Journey, which are available to everyone.

    Read more: How to check your credit score for free and Here’s how often your credit score updates.

    2. Carrying a balance on my credit card boosts my credit score

    False. Carrying a balance on your credit card doesn’t help your credit score, it only has the potential to hurt it and it will end up becoming expensive over time paying interest. Not to mention, it’s a waste of money to pay interest on your balance if you can afford to pay off your credit card bill in full each month.

    Lingering balances on your account directly affect your credit card utilization rate. The higher your credit card balance, the higher your utilization rate, which can in turn hurt your credit score.

    If you’re already carrying a balance on a credit card, consider transferring it to a balance transfer credit card, such as the Discover it® Balance Transfer. This can help you save money in the long run, if you commit to paying off your balance during the 18-month introductory 0% APR period (before it goes to 11.99% - 22.99% variable APR).

    3. My income impacts my credit score

    False. Your salary and income are considered measurements of your capacity to pay bills, not your potential credit risk.

    “Income isn’t even on your credit reports so it can’t impact your score,” Ulzheimer says. “Wealth metrics aren’t considered by credit scoring models.”

    While it’s good to know that the size of your paycheck has no influence on whether you have good or bad credit, you should know what does impact your score. Variables include your payment history, amounts owed (utilization rate), length of credit history, new credit (how often you apply for and open new accounts) and credit mix (the variety of credit products you have).

    4. A good credit score means you’re rich

    False. Credit scores are just a measure of your risk (whether you pay your bills on time and in full). “A good credit score means you’re a good credit risk,” Ulzheimer says. “A low score means you’re a poor risk. That’s all they mean.”

    Having a high salary doesn’t guarantee a higher line of credit, but if you update your income with a card issuer to a higher amount, you may see an increase in your credit limit, which could be positive for your credit utilization ratio (as long as you continue to pay your balance in full each month). Also some cards, like the American Express® Gold Card, have no preset spending limit, which means there is no assigned credit limit.

    5. A perfect credit score doesn’t really matter

    True. While it would be fun to say you are in the elite 850 club, there are no additional benefits of having a perfect score. No loan and credit products exist that are only available for people with perfect scores, and once you reach a certain score, you pretty much get all the same benefits anyways.

    Source : www.cnbc.com

    How to Improve Your Credit Score

    If you want to raise your credit score, there are a number of simple things that you can do. Here’s a step-by-step guide.

    PERSONAL FINANCE CREDIT CARDS

    Overview

    DEFINING ‛BAD CREDIT’

    How Bad is my Credit Score?

    The 5 Biggest Factors That Affect Your Credit

    7 Things You Didn't Know Affect Your Credit Score

    The Side Effects of Bad Credit

    Top Sources for Free Credit Scores

    WHAT HURTS YOUR CREDIT SCORE

    What Actions Lower Your Credit Score?

    Will Bouncing a Check Damage My Credit Score?

    How Not Paying Cable Bills Could Hurt Your Credit Score

    Do Inquiries for Preapproved Offers Affect My Credit Score?

    How Too Many Credit Cards Can Hurt Your Credit Score

    How Will Debt Settlement Affect My Credit Score?

    HOW TO GET CREDIT WITH BAD CREDIT

    Best Credit Cards for Bad Credit

    Best Secured Credit Cards

    Secured Credit Card

    Semi-Secured Credit Card

    Getting a Home Equity Loan With Bad Credit

    Getting a Car Loan With Bad Credit

    Subprime Borrower

    HOW TO REPAIR BAD CREDIT

    How to Improve Your Credit Score

    How Long Does Negative Information Stay on Your Credit Report?

    Avoid These Credit Repair Mistakes

    Can You Pay to Remove a Bad Credit Report?

    Expert Tips for Removing Credit Card Debt

    How to Improve Your Credit Score

    How to Improve Your Credit Score 8 strategies that will get you a better credit score

    By REBECCA LAKE Updated January 02, 2022

    Reviewed by THOMAS J. CATALANO

    Fact checked by YARILET PEREZ

    Your credit score is one of the most important measures of your financial health. It tells lenders at a glance how responsibly you use credit. The better your score, the easier you will find it to be approved for new loans or new lines of credit. A higher credit score can also open the door to the lowest available interest rates when you borrow.

    If you would like to improve your credit score, there are a number of simple things that you can do. It takes a bit of effort and, of course, some time. Here’s a step-by-step guide to achieving a better credit score.

    Why Does a Good Credit Score Matter?

    A good or excellent credit score will save most people hundreds of thousands of dollars over the course of their lifetime. Someone with excellent credit gets better rates on mortgages, auto loans, and everything that involves financing. Individuals with better credit ratings are considered lower-risk borrowers, with more banks competing for their business and offering better rates, fees, and perks. Conversely, those with poor credit ratings are considered higher-risk borrowers, with fewer lenders competing for them and more businesses getting away with criminally high annual percentage rates (APRs) because of it. Additionally, a poor credit score can affect your ability to find rental housing, rent a car, and even get life insurance because your credit score affects your insurance score.

    KEY TAKEAWAYS

    Make sure that you pay at least the minimum balance due on time.

    Pay down your credit card balances to keep your overall credit use low.

    Don’t close old credit card accounts or apply for too many new ones.

    1. Review Your Credit Reports

    To improve your credit, it helps to know what might be working in your favor (or against you). That’s where checking your credit history comes in.

    Pull a copy of your credit report from each of the three major national credit bureaus: Equifax, Experian, and TransUnion. You can do that for free once a year through the official AnnualCreditReport.com website. Then, review each report to see what’s helping or hurting your score.

    Factors that contribute to a higher credit score include a history of on-time payments, low balances on your credit cards, a mix of different credit card and loan accounts, older credit accounts, and minimal inquiries for new credit. Late or missed payments, high credit card balances, collections, and judgments are major credit score detractors.

    How often should you check your credit score?

    You should check your credit score regularly to check for errors, but make sure that you are doing so through soft inquiries so that your score isn’t dinged. Many banks offer free credit monitoring to their customers; check with yours to see if you can enroll in their service and get alerts whenever your score changes.

    How can you quickly improve your credit score?

    Check your credit score to see why it is low.

    Pay down your revolving credit as much as possible to lower your credit utilization percentage.

    Have any inaccurate things removed (especially late payments).

    Be added as an authorized user to an old account with perfect payment history, ideally with a low utilization rate. Ideally, this is done by a friend or relative, and they do not even have to give you the card. You can also pay certain credit repair services that will broker a deal between you and a stranger to do this.

    2. Get a Handle on Bill Payments

    More than 90% of top lenders use FICO credit scores, and they’re determined by five distinct factors:

    Payment history (35%)

    Credit usage (30%)

    Age of credit accounts (15%)

    Credit mix (10%)

    New credit inquiries (10%)

    As you can see, payment history has the biggest impact on your credit score.1 That is why, for example, it’s better to have paid-off debts (such as your old student loans) remain on your record. If you paid your debts responsibly and on time, it works in your favor.

    Source : www.investopedia.com

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