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You may have heard quite a bit about credit, either from your friends or on the news, but there are a lot of myths floating around about credit, particularly since the recent law change.
Although cancelling credit card offers may de-clutter your kitchen table, there's no evidence it'll improve your credit score. Credit card offers are considered "soft" inquiries, which don't have an impact on your score . Along the same lines, if you're worried that a checking your own credit score will lower it, don't be! Checking your credit score is also a soft inquiry and won't hurt your FICO score. The path to perfect credit is attainable, you just won't get there faster by cancelling offers.
Sorry folks, closing those old paid-in-full accounts won't boost your score -- and it could actually hurt it . Credit reporting agencies like Equifax (NYSE: EFX ) Experian, and TransUnion want to see long credit histories that are in good standing. When you close an account you, theoretically, shorten your credit history.
Creditors want to see that you've had a long history of responsible and diversified borrowing. When you have more credit available, and don't use it, your credit utilization rate stays low and can help increase your score. Keep in mind that some accounts will stay on your history even after they're closed. So if you're hoping to get rid of previously delinquent accounts but paying them off and canceling the account, it won't work.
Although many companies out there promise they can improve your credit score if you pay them money, it's simply not true. If you've missed payments, you can't pay to make those records go away.
What can be done is to dispute legitimate discrepancies on your credit report . But be careful about hiring a company to do this. Some will send a lot of letters to credit agencies about your account, but won't actually find out what should be disputed and what shouldn't be. You'll end up spending money and won't have fixed anything.
One of the first steps to improving your credit is to be proactive. Find out what your score is and make sure the accounts and payment history are correct. With so much information flowing into the credit agencies, finding a problem on your account isn't unusual.
Fellow Fool and personal finance expert Dayana Yochim says your credit history and total amount you owe make up 65% of your credit score. So keep the regular payments coming. Also, keep credit usage low. Some institutions, like Bank of America (NYSE: BAC ) , will tell you that using up to 50% of your available credit is OK . But let's be honest, it's in the interest of those banks to have you using up your credit. A better bet would be to use 30% or less of your available credit, while 10% or lower should be your ultimate goal. If you're trying to figure out which debts to knock out first, start paying off any no-money-down financing plans you have. Although it can seem overwhelming, it is possible to improve your credit score in months, not years -- so get started today!
Once you've figured out what to do with your personal debt and your credit score is all in order, one of the best financial investing approaches is to choose great companies and stick with them for the long term.