A new survey points out misconceptions people have about how to raise their credit scores.
While the majority of Americans (80 percent) believe they understand what a good credit score is, many appear to be confused about how to reach a high score.
For instance, 30 percent of Americans wrongly believe that carrying a balance on a credit card will help improve their credit score. Among millennials, the percentage jumps to 39 percent, according to a new survey by BMO Harris Bank.
More than a quarter of consumers incorrectly think their credit score will drop if they check it.
Credit scores are based on your credit history and help lenders decide whether to loan you money and at what interest rate. They also affect insurance premiums, among other aspects of your financial life.
The survey said that just half of consumers said they check their credit score once a year. One in 5 said they don’t know their score. Among the millennial crowd, 25 percent of consumers don’t know their credit score.
While the average American believes a good credit score is 660, millennials think 625 is good. According to BMO Harris:
“The good news here is most Americans are not far off in what they believe is considered a good score, which we generally tell customers is in the 680-720 range. However, there’s some room for improvement in terms of the frequency with which they check it,” said Alex Dousmanis-Curtis, head of retail banking, BMO Harris Bank.
Consumers can improve their credit rating by, among other things, paying their bills on time and using less of their credit limits, BMO Harris said. Experts recommend that you use no more than 20 percent.
Michael Gregory, BMO Capital Markets’ head of U.S. economics, said consumers have been more cautious using credit cards since the Great Recession. Gregory said:
According to the New York Federal Reserve, total credit card debt peaked above $865 billion at the end of 2008 and, by early last year, it had fallen to around $660 billion — a near 25 percent reduction in just over three years. Since then, credit card debt has been essentially flat, even as cards in circulation and credit limits have moved higher — a sign that the caution continues.
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