"How can I improve my credit score?"

"That's one of the most frequent questions I hear," says Karen Chan, Consumer Economics Educator with University of Illinois Extension. "Unfortunately, there are several myths about what does or does not impact your credit history and score. Clearing up these misconceptions can help people make better decisions."

Chan frequently hears five common beliefs about credit history and credit scores that are false.

1. Checking my own credit history will affect my credit score.

It is true that inquiries can affect your credit score - but only the inquiries that mean you applied for credit in the past two years. Those are known as "hard inquiries. When you get a copy of your own credit history, you may see additional types of inquiries. Companies that received your contact information for marketing purposes, such as sending you a preapproved credit card offer, will be listed. If you recently obtained a copy of your credit history, you'll see that noted as well. But you are the only person who sees those two types of inquiries, and they have no impact on your credit score or on lending decisions.

2. Cancelling a credit card I don't use is always a smart thing.

Cancelling a card you no longer use may be a good money management decision, if having the card tempts you to spend more. But cancelling it could hurt your credit score. One of the factors that affects your credit score is your utilization ratio - the amount of your available credit limits that you are using. Chan explains, "Let's say you have two credit cards, each with a $5000 limit. You have a $1000 balance on each one. You're using 20% of your available credit. Then you transfer the balance from Card A to Card B, and cancel Card A. You're still carrying a balance of $2000 but your credit limit is $5000. Your utilization ratio went up to 40%, and that's not a good thing."

2. Carrying a balance on my credit card is better for my score than paying it off each month.

Your credit history doesn't tell lenders whether you pay off your credit card each month. They only know what your balance was on the date that the credit card submitted the information to the credit reporting agency. Having regular activity on the card (making purchases and paying on time each month) has a positive effect on your credit history and score.

3. One of my loans was turned over to collections. If I pay it, that negative information will disappear from my credit record.

If you were late on a bill or if it went to collections, that information will still be true even if you finally pay the debt in full. Those late payments and collections can remain on your credit history for seven years. Having the debt reported as paid is better than showing that you still owe the money, but it won't remove the negative information from your credit record.

4. I use a debit card. If I choose "credit" when I use it, it becomes a credit card and helps me build a credit history.

Using a debit card won't help you build a credit history. Choosing "credit" when you use a debit card does not change the type of card you have. You're still using your own money, not borrowing money. Choosing debit or credit determines how the transaction is processed (directly with your bank or through the same processing system used by credit cards) and whether you enter your PIN.

"The most important thing you can do to improve your credit score is to pay your bills on time each month starting today," says Chan. "As the negative information on your credit history gets older, it becomes less important. Even though those negative pieces of information can remain on your credit history for years, you could see a significant improvement in your score after paying your bills on time for a year or two."

For more tips about managing your money, visit University of Illinois Extension's website on Getting Through Tough Financial Times at http://web.extension.illinois.edu/toughtimes/

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