Before I start delving into specific topics, I really wanted to get out some common misconceptions out of your mind. Over the next 10 days, I am going to be covering the top 10 lies, misconceptions and mistakes people hear about credit.
1) I should only have 3-4 credit cards so as to not hurt my credit.
Actually this hurts you more than it helps you. The FICO scoring system works off of a couple variables. It includes 1. Payment History: Approximately 35% of your score. 2. Utilization; available credit/used credit: About 30% of your score. 3. Length of Credit History: About 15% of your score. 4. Pattern of Credit Use: About 10% of your score. 5. Types of Credit in Use: About 10% of your score. 6. Number of Inquires also factor in.
Having only a couple credit accounts hurts you in 2 main ways:
- If you ever Revolve Debt; which means not paying it off before your statement hits; you are revolving debt. If you have $60,000 in credit available, and you revolve $18,000 you will show a 30% utilization. This will usually drop your FICO score between 20-80 Points depending on different determining factors. Even if you pay off the balance every month and never pay a penny of interest, you're still hurting your score.
- If you only keep 3 Accounts, if you ever end up closing one of your revolving accounts, all of a sudden you lost 33% of your open revolving account history. This could drop your FICO score between 30-60 points, even though you did nothing wrong.
When we consult our clients, we teach that more accounts only help you. Both by raising your available credit, and by having another positive account on your report.
Tomorrows #2 Mistake will involve closing Credit Cards and why you shouldn't do it.
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