Randy had an 850 credit score. According to FICO, the preferred scoring mannequin, that is pretty much as good because it will get.
Still, a line on his credit report stated he might decrease his utilization fee, so he promptly paid off the rest of his automobile mortgage with one $6,000 cost, after which his score sank 30 factors. (Randy has been a goal of id theft and requested to omit his final title for privateness considerations.)
Most folks assume that wiping out these auto funds could not harm, however that is a mistake.
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When it involves credit scores, there are a few issues many debtors typically get mistaken, consultants say. Here are the highest misconceptions and why it is so arduous to set the document straight.
Misconception No. 1: Debt is unhealthy
Your credit score — the three-digit quantity that determines the rate of interest you may pay for credit playing cards, automobile loans and mortgages — is predicated on a variety of elements however most significantly, it is a measure of how a lot you might be borrowing and the way accountable you might be with regards to making funds. Â
Having a superb score does not imply you’ve gotten zero debt however somewhat a confirmed observe document of managing a mixture of excellent loans. In reality, shoppers with the best scores owe a median of $150,270, together with mortgages, in response to a latest LendingTree analysis of 100,000 credit experiences.

The debtors with a credit score of 800 or greater, corresponding to Randy, pay their payments on time, each time, LendingTree discovered.Â
To that finish, having a four-year auto mortgage in good standing was working to Randy’s benefit.
“Lenders additionally wish to see that you’ve got been liable for a very long time,” stated Matt Schulz, LendingTree’s chief credit analyst.Â
The size of your credit historical past is one other one of the essential elements in a credit score as a result of it offers lenders a higher have a look at your background with regards to repayments.
Misconception No. 2: All debt is identical
Since Randy had already paid off his mortgage and has no pupil debt, that auto mortgage was key to point out a diversified mixture of accounts.
“Your credit combine ought to contain extra than simply having a number of credit playing cards,” Schulz stated. “The splendid credit combine is a mix of installment loans, corresponding to auto loans, pupil loans and mortgages, with revolving credit, corresponding to financial institution credit playing cards.”Â
“The extra several types of loans that you’ve got confirmed you may deal with efficiently, the higher your score might be.”

The complete quantity of credit and loans you are utilizing in comparison with your complete credit restrict, often known as your utilization fee, is one other essential side of a nice credit score.Â
As a common rule, it is essential to keep revolving debt below 30% of available credit to restrict the impact that prime balances can have.
Misconception No. 3: You want a perfect score
Only about 1.6% of the 232 million U.S. consumers with a credit score have a perfect 850, in response to FICO’s most up-to-date statistics.Â
Aside from bragging rights, you will not acquire a lot of a bonus by being on this elite group.
“Typically, lenders don’t require people to have the best credit score attainable to safe one of the best mortgage options,” stated Tom Quinn, vice chairman of FICO Scores. “Instead, they set a high-end cutoff, that’s sometimes within the higher 700’s, the place candidates scoring above that cutoff qualify as a good credit score and get essentially the most favorable phrases.”
Each lender units their very own credit score thresholds for who they take into account essentially the most creditworthy. As lengthy as you fall inside these ranges, you might be prone to be permitted for a mortgage and qualify for one of the best charges the issuer has to supply, Schulz added.
“Anything over 800 is gravy,” Schulz stated, and “in some circumstances, the distinction between 760 and 800 is probably not that important.”
Most credit card issuers now present free credit score entry to their cardholders, making it simpler than ever to examine and monitor your score.