Credit scores are critically important factors in a consumer’s financial life, determining the cost of borrowing for a home, a car or obtaining credit cards.
However, four in five Americans (77 percent) don’t realize that credit accounts with high outstanding balances hurt their credit score — even if they pay the bills on time, according to a new Bankrate.com report.
Additionally, 76 percent are unaware that closing accounts lowers their credit score. And 70 percent are surprised to learn that limiting themselves to just one credit account has a negative impact.
“There’s a lot of confusion about credit scores,” said Jeanine Skowronski, Bankrate.com’s credit card analyst. “Three simple rules to follow are: pay your bills on time, keep your balances low and build a diverse portfolio of long-term credit accounts.”
Bankrate points out that the most expensive misconception is probably this one: Consumers must carry a credit card balance in order to improve their credit score. It’s not true, 55 percent of Americans think it is.
With the average credit card interest rate is 15 percent, someone who is carrying a balance under this misconception could throwing away hundreds or even thousands of dollars per year.
If someone makes a credit card payment more than 30 days late, 37 percent of U.S. adults were unable to correctly state that it will show up as a negative account on their credit report — even if the bill is later paid in full.