CNN.com
Beth Braverman
You probably already know that you need a good credit score to get the best interest rates on a mortgage or auto loan, which can make a big difference to your budget over time.
“With something like a mortgage, even a minor difference in rates can have a big impact on your monthly payment and can mean tens of thousands of dollars or more over the life of the loan,” said Justin Pritchard, a certified financial planner and founder of Approach Financial.
But that’s just the beginning of how the three-digit number impacts your financial life.
Your credit score, a rating of your credit worthiness, can also affect the rate that you pay for insurance, your cell phone plan, and even your ability to land certain types of jobs.
But despite the importance of credit scores, they remain widely misunderstood. Here’s a look at several common misconceptions.
#1: Carrying a credit card balance will improve your score
Nearly 60% of consumers believe this myth, according to a recent survey by US New & World Report. One of the main factors in determining your credit score is your credit utilization ratio, or the percentage of your available credit that you’re using at any given time. The lower the number, the better — but aim to keep it under 30%.
“You don’t want to carry a balance, because that’s just pushing up your utilization ratio,” said Jirayr R. Kembikian, a certified financial planner with Citrine Capital.
#2: There’s only one credit score
While FICO is the most popular score provider, different types of lenders use different versions of the score. Plus, a growing number of lenders work with FICO competitors, such as VantageScore.
“There are many, many different credit scores out there, and the score that you just saw might not be the same one lenders see when they’re examining your creditworthiness,” said Matt Schulz, chief credit analyst at LendingTree.
Even if the scores are slightly different, they should trend in the same direction, Schulz added. So if one score drops significantly and the other does not, that could indicate a mistake or other issue in one of your credit reports.
This article was originally published on CNN on July 11, 2022. Want more? Read the full article here.