Credit Myths Unlocked
5 Credit Myths Unlocked
The media, newspapers, and internet are full of credit myths. Much of the information regarding credit is inaccurate. Let’s check out some common credit myths:
Credit Myth 1: “The balance on my credit cards doesn’t matter. As long as I pay the minimum payment on my credit cards, I will have a perfect credit score.”
TRUTH: This credit myth can get you in a lot of trouble. Just because you pay your bills on time does not mean you will have a perfect credit score. Especially if your credit cards are maxed out or close to the limit. Payment history accounts for 35% of your credit score or roughly 192.5 points. Debt utilization accounts for 30% of your credit score or roughly 165 points. As you pay off credit card debt and make on-time payments, then your credit score will get better, since your debt utilization is going down. But just paying on time, in and of itself, will not make your credit score go up.
Credit Myth 2: “Going over the limit on my credit cards is okay because after all, the credit card company authorized the purchase.”
TRUTH: Doesn’t this credit myth seem like it has its origin story as a rationalization from a compulsive spender? LOL. Regardless, it’s not true in any way, shape or form. Some credit card companies will approve the transaction even if it goes over the limit but will charge you a fee around $35. Make sure if this happens that you pay down the balance quickly so that it does not show on your credit report. This will also affect your credit score since maxed our credit
Credit Myth 3: “Types of credit don’t matter, it’s all the same.”
TRUTH: Actually, this credit myth can be misleading as the credit scoring system rewards you for having a diverse credit profile. A mixture of credit accounts for 10% of your credit score or roughly 55 points. To maximize your points in this category, the credit scoring algorithms want you to have a mortgage loan, an auto loan and a credit card to show that you can handle multiple accounts. But if you don’t have a mortgage, auto loan or credit card, only apply for them when you truly need them.
Credit Myth 4: “Paying off a collection account or charge-off will increase my credit score.”
TRUTH: This is a huge credit myth, and it’s contagious because it makes sense. Really, though, it’s the fact that you have a collection account or charge-off on your credit report that is hurting you. The balance usually never matters. Now, I’m definitely not saying that you shouldn’t pay off negative debt, but it’s an important detail and something to be concerned about. Always verify the accuracy of the account before paying.
Credit Myth 5: “Using debit cards will help to build your credit.”
TRUTH: Nope. This, too, is completely false. Debit cards are just like your bank account, they do not get reported to the credit reporting agencies in any way. But if you end up going into collections on your bank account, that will be reported to ChexSystems. Very important to know what is being reported on your ChexSystems in case you ever get denied for checking account.
I hope you enjoyed these 5 Common Credit Myths. Post other credit myths below that you would like for me to give you the truth on. If you are looking to fix your credit, but don't know where to start. Don't worry. I'll be glad to get on the phone with you to discuss your credit, your goals and how I can personally help you achieve them.
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