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5 misconceptions that might hurt your credit score

After putting off getting a credit card for years (I didn’t like the idea of carrying any more debt), I finally took the plunge this spring — but not before taking a dive into credit card dos and don’ts.

All the advice I had on credit cards seemed to conflict. It’s good to keep a balance, and be sure to pay your full balance every month. Don’t check your credit score if you don’t want that score to drop, but be sure to check your score to know how you’ll qualify. In other words: it couldn’t possibly all be true.

The personal finance website NerdWallet released a survey Tuesday on what Americans know and don’t know about credit cards. It turns out I wasn’t the only one confused.

Here are five of the misconceptions highlighted in the report. If they’re not righted, they can hurt your score and, in turn, the credit available to you.

Misconception No. 1: A credit score of 600 is good.

“In no universe is 600 a good score,” NerdWallet columnist and certified financial planner Liz Weston said.

And yet about one in five Americans think that a credit score above 600 will qualify a person for any credit card. It won’t.

Credit scores generally range from 300 to 850; a score of 600 is actually below average.

A score of 600 is “going to make it really hard to get credit, and if you do get credit, you’re going to pay a lot for it,” Weston said. “In most of the formulas, you’re going to want above 700, ideally above 750.”

A score of 600 “unlocks department credit cards, which will qualify people at the lower end of the credit score,”  Erin Lowry, author of “Broke Millennial,” said. But those credit cards have annual percentage rates in the high 20s to low 30s.

“Once you’re in the 700 club, you start to unlock the top-tier financial products,” Erin Lowry said. And top-tier financial products mean you can borrow money for less and make your life far less expensive.

Misconception No. 2: You start off with perfect credit score.

Eleven percent of Americans think people start off with a perfect credit score, according to NerdWallet.

They don’t.

READ MORE: Column: Want to raise your credit score? Follow these two steps

“It’s something you build from scratch,” Weston said. “It takes a while to build your credit over time, but you can really trash it overnight.”

That doesn’t mean you start at a zero credit score, however.

“You start with no information. You would really be referred to as having no credit history, or having a thin file, and from there you work way up,” Lowry said.

Misconception No. 3: Carrying a balance on your credit card improves your credit score.

Again, no. Carrying a balance does not improve your credit score. Yet, two in five Americans think just that.

“That one we’ve been beating our heads over for decades,” Weston said. “There’s no upside to carrying a balance. Basically, you’re paying interest for no good reason.”

To build your score, continue to use your card lightly, but regularly, Weston said.

There never was a good reason to carry debt on your credit cards, but today there’s a good reason not to.

People who pay their balances in full are considered a lower risk for lenders than those who don’t.

“Fannie Mae and Freddie Mac told mortgage lenders that if this data is available, you should use it,” Weston said. In fact, paying off your balance every month just might put you over the edge in the eyes of a lender when it comes to getting approved for a mortgage.

Misconception No. 4: Checking your credit score hurts your credit report.

It does not. But this misconception might explain why 12 percent of Americans have never checked their scores.

There are two types of inquiries into your credit report: a hard pull, done by banks when you apply for credit, and a soft pull, which happens when you check your credit score.

READ MORE: Missed a credit card payment? Just call your credit card company

A hard pull appears on your credit file and can hurt your credit score if you apply for too many lines of credit, as it could make you apper less stable financially and thus less likely to repay a loan.

A soft pull, meanwhile, won’t hurt your credit — and it never hurts to know your credit standing.

“By federal law, you are allowed to check your credit report for free from each of the three bureaus once per year,” Lowry said. She points to the government-endorsed website, AnnualCreditReport.com, as the place to start.

Misconception No. 5: You should spend close to your credit limit.

“There’s a myth that it shows more responsibility to run up your card and then pay it off,” Lowry said.

It’s quite the opposite. You want to keep your credit utilization low.

“The credit score formulas like to see a big gap between what you’re using and what you’re allowed to use,” Weston said. “What we tell people is 30 percent or less is good, 20 percent or less is better, 10 percent or less is best.”

The two big factors that make up your credit card score are:

  1. Payment history. (Do you make payments on time?)
  2. Utilization. (How much credit do you use that is available to you?).

“These two factors make up 65 percent of your credit score,” Lowry said. Of the five factors used to determine credit scores, these are the two consumers should worry about.

Lowry also suggests new credit card users be cognizant of their spending. If your credit limit is low, say at $1,000, spending just $300 will put you at your 30 percent utilization rate before you know it.