According to a recent report by Bankrate.com, approximately four in five Americans (77 percent) do not know that accounts with high outstanding balances can hurt their credit scores, even if they pay bills on time. Nearly the same percentage is unaware that closing an account lowers their credit scores.
“There’s a lot of confusion around credit scores,” says 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.”
The most expensive misconception, Bankrate.com found, is the notion that Americans must carry a credit card balance in order to improve their credit score. Not so—the average credit card interest rate is 15 percent, so someone carrying a balance under the (false) impression that it will help his or her credit score could be throwing away hundreds or even thousands of dollars each year.
Additionally, 37 percent of Americans did not know that making a payment more than 30 days late can result in a negative account on their credit report, even if the bill is later paid in full.
Zeroing in on millennials, more than half do not know that having a short credit history can potentially delay major life milestones, such as buying a home.