Whether you already have good credit — or you’re working to improve your credit score — you probably have some ideas about how to maintain or raise your credit standing, or even what a high standing will get you.
But you may need to rethink everything you thought you knew about good credit. We’re dispelling four major myths about good credit.
Myth 1: Carrying a credit balance can make good credit scores even better
Truth: So, you have good credit and you’ve even found the best credit card for people with good credit. You want to improve your score even more and you’ve heard keeping a credit card balance is the way to do so. Are you making the right choice?
Actually, credit scores are more a reflection of the way you handle your credit than the amount you carry. Simply having an ever-present balance won’t do anything to help your score, but responsibly paying off your debt will.
Myth 2: If you handle your finances responsibly, you’ll always maintain your good credit
Truth: Getting and keeping a good credit score takes time and dedication. Simply paying bills in a timely matter won’t be enough to build good credit. Credit scores are determined by a combination of factors, including your payment history, the length of your credit history and your amounts owed, among others.
Take the amounts owed category, for instance. This is based on your total debt as well as the ratio of your debt to your credit limit. So even if you regularly make your minimum payments each month, carrying a lot of debt that is close to your credit limit may be harmful. As a general rule, you’ll want to spend less than 30% of your total limit.
Myth 3: Co-signing won’t affect those with good credit
Truth: If you have a good credit score, you may consider co-signing on a loan or credit card to help someone with bad or no credit qualify. You know that the other person will be making the payments, so you view the move as more of a good gesture than a financial risk.
In reality, though, each of the co-signers is equally responsible for the loan. Thus, late payments or a default on the loan will affect the credit of both parties. Know this risk before you enter a co-signing agreement.
Myth 4: If your income increases, your credit score will, too
Truth: While income level is taken into account by lenders considering new loan applicants, it actually isn’t related to your credit score at all.
Just as salary isn’t factored into your credit score, an increase in salary isn’t either. Don’t view your bump in pay as a golden ticket to a score in the 800s. If you want to use your higher income to bring your credit score higher, make your payments on time and lower the percentage of your total credit limit you’re using.
This article was updated Sept. 6, 2016. It originally published April 14, 2016.
Truth illustration via Shutterstock.