Improving your credit score: Truth and myths revealed

Good credit is critical to your overall financial health. Without a good credit score, you can face challenges when trying to obtain loans, especially when you’re applying for a mortgage. Here are some truths and myths on improving your credit score along with tips on how to improve it.

Tags: Budgeting, Online banking
Published: March 10, 2021

Your credit score is a way to assess how responsible you are financially and determine whether to give you a credit card, determine how much money a bank is willing to loan you for your mortgage, or even establish cable, telephone or water service in a new home. So, how can you improve your credit score, or maintain your good credit score? We’ve gathered a few truths and myths, with insights from U.S. Bank Client Relationship Specialists Holly Kevelin and Branch Manager Jason Namyst around simple ways to build and maintain good credit:


1.     True: Late payments can hurt your credit score

Your payment history makes up 35 percent of your credit score, and paying credit card bills late can impair your ability to get more credit or a lower interest rate down the road. If you are accustomed to paying the entire balance of your credit cards monthly, that’s great, but add a layer of security by setting an account alert on your phone and marking your calendar to send your payments in on time. Or, take advantage of automated bill-payment options so you can set the payment up in your account and enable auto-pay when it’s due.

2.     True: You should always use credit cards responsibly

When calculating your credit score, there’s a heavy focus on your credit behavior. Responsible use of credit cards can improve your credit history. Stay within your means, and make sure your credit limit doesn’t exceed the money you usually have on hand. Consider applying for just two cards—a credit card at a local department store or gas company, and a major credit card. Use these cards on small purchases and, as stated in the first tip, pay the balances in full monthly.


3.     True: It’s important to stay below your credit card limits

Maxing out your credit cards can raise red flags about your ability to handle debt. Many experts recommend that you avoid using more than 30 percent of your available credit at any given time. For example: If your credit card limit is $1,000, avoid carrying a balance of more than $300 from month to month. It’s also important to make sure you’re not carrying a large balance of your revolving credit across all cards. Add your credit limits from each card together to view your credit as one large sum, and try not to exceed that by more than 30 percent. If you are carrying a larger balance across credit cards but still have a decent credit score, you may be able to qualify for a personal loan. The loan will consolidate the credit balance off of the card and into a monthly payment. This can be particularly helpful if you are planning to apply for a mortgage in the next few months to help increase your credit score in a shorter amount of time.


4.     Myth: There’s no right way to pay off your credit card debt

While it’s absolutely important to pay your minimum balance, and more, there’s a bit of a catch. Paying down credit card balances may raise your credit score, especially if you have a lot of credit card debt. Look for the section of your credit card bill that details how long it will take you to pay off a balance with only the minimum payments, and strive to cut that time down. And if you have an installment loan, try your best to pay it off early. However, being deliberate about your payments is key: if you have a large balance on your credit card, it may be a good idea to pay off the balance that puts you under 30 percent of that credit threshold. Once you’ve achieved that balance, you may want to wait until the next statement to pay off the rest of the balance. If you do too much too soon, your credit score may remain stagnant for some time.


5.     Myth: You shouldn’t review your credit report

It’s recommended that you should be reviewing your credit report yearly, at a minimum. Keep in mind: you are entitled to one free credit report per year from the federal government through the FTC. When thinking about your credit report, it’s important to understand the difference between a hard credit pull and a soft credit pull. “Soft” credit pulls are when you check your own credit, or when a company that you’ve authorized checks your credit as part of a background check or to preapprove you for an offer. A “hard” pull is what happens when you apply for a new line of credit. There is no harm in a “soft” credit pull if you’re curious about your credit score. Understanding why your credit score is at its current standing is crucial when attempting to improve it. There may be an outstanding loan or debt that is affecting your score and thus, your ability to qualify for a large purchase or loan. If you find a mistake, contact the credit-reporting agency and discuss it with them. You can check your credit score through a variety of services, or we can help.


6.     Truth: Having no credit is worse than having bad credit

Creditors and lenders want to see that you can handle debt. Having multiple open credit lines that are in good shape is key when it comes to your credit score. If you don’t have a credit card, consider opening one with a small limit that you’re sure you can pay off to begin to build your credit score. That being said, be careful about opening—or trying to open—multiple accounts in rapid succession, you can actually lower your credit score. If you open a credit card at your new favorite department store, wait a few months (or longer) before applying for additional credit.


7.     Myth: I should close credit lines I’m not using

Your credit score is partly based on the age of your credit. Closing your oldest line of credit may actually affect your credit score negatively. If you have a few cards open, be wary about closing an old account that you don’t use. There’s no need to keep a minimum balance on it, but once it’s paid off in full, put it in a drawer and keep the line open. If you’re concerned about paying a yearly fee on a card you’re not using, get in touch with your creditor or bank: they may be able you find a way to avoid that fee.


8.     True: My credit score can affect my mortgage payments

It’s important to note when you’re applying for any loan, including a mortgage, that the bank will take your credit score into consideration. If you have a high credit score, the bank will be more likely to lend you a higher amount of loan or offer you a better interest rate.


As you’re working to improve your credit score, be on the lookout for scams. Learn more about how to spot a credit repair scam.