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PERSONAL FINANCE
Myths About Credit Scores
BY MARY CORNATZER
MCCLATCHY NEWS SERVICE
Many readers have sent me questions
about their credit scores, wanting to know why they were lower than they
thought they should be and what they could do to bring them up.
To answer those questions, I talked
to Ken Lin, who started Credit Karma a little over two years ago. He
busted some myths as well.
Myth No. 1:
You have to be in debt to have a good credit score. Lin calls this a big
misunderstanding.
``People with scores above 800 have
less debt than those with credit scores of 600 and 700,'' he says.
Lin suggests that you never use more
than 30 percent of the credit you have available to you.
Lin's suggestion: Get several cards
and use them for the things you would normally buy, then pay each card
off monthly. For instance, charge gas on one card, groceries on another
and maybe your gym membership on the third.
The key is to use each card only once
or twice a month for necessities then pay on time, he says.
Myth No. 2:
Wealthy people have better credit scores.
Income is not a factor in credit
scores, Lin says. The rich don't always pay bills on time.
Myth No. 3:
If you don't have a credit history, your credit score will be poor.
Actually, no credit history means no
negatives that can affect your score. You're given the benefit of the
doubt, and Lin says you'll most likely start with a score in the 600s.
After that, your score will go up or down depending on how you treat
credit. Those with scores in the 400 and 500 range are not paying their
bills and have otherwise shown a history of not handling debt
responsibly.
If you have a low score, it's
possible to raise it by 100 points or more in just a year if you:
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Clear up any outstanding debt and
get current on your payments.
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Make sure to pay all future bills
on time.
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Start establishing a new, better
credit history by getting a secured credit card, which requires a cash
deposit. That deposit acts as the credit line for your account. For
example, if you put $500 in the account, you can charge up to $500.
Myth No. 4: It's better to
have no debt at all.
Sounds great, doesn't it?
Unfortunately, we live in a world where people need proof that you can
pay your bills and that you can handle money wisely. Your credit score
is used for many things by many people. In most states, auto insurers
can use your credit score when figuring out how much insurance you
should pay. Potential employers look to see if you're under financial
stress, which could affect job performance.
At some point, you'll want to buy a
house. A good loan depends on a good credit score.
You say, you'll rent all your life?
Landlords look at your score as well.
Lin says get a few cards, use them
and pay them as suggested above, and then pay cash the rest of the time.
Read more
in the Miami Herald
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