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A high credit score qualifies you for an outstanding loan, that ocean-view apartment, a low-interest mortgage, a credit card, and more. Establishing a good credit score is the most significant piece of the puzzle. But with conflicting information about credit scores, you’ll have a hard time separating the wheat from the chaff.
We’re debunking these 13 myths because misinformation will mislead you and could drive you into a financial sinkhole.
Credit Cards Are Terrible for Your Score
People who misuse their credit cards will always see them as a bad thing. They will sink into debt and will have to pay off high interest rates. Your credit card will be good to you if you use it well.
If anything, your credit card is the best way to build a solid credit score. Paying your card on time will prevent late fees and make a positive payment history, boosting your score.
Earning More Boosts Your Credit Score
Your credit score doesn’t automatically go up because you earn more. Many well-earning individuals have bad credit scores because of the poor financial decisions they made in the past.
Earning more will only give you a clean slate, helping you catch up with debt, make new payments, and begin working towards a better score.
Carrying a Credit Card Balance Builds Credit
Carrying a credit card balance doesn’t build good credit. The only thing that will help you work towards a better credit score is paying your card off in full at the end of every billing cycle, as it will solidify your credit history.
Without a credit card balance, there is nothing to pay off; thus, there is no payment history. Paying on time prevents the accumulation of high interest and late payment fees, which will improve your score.
Checking Your Credit Hurts Your Overall Score
Many people believe that checking their scores will instantly lower them. Contrary to this, checking your score is the only way to know where it stands. Equifax recommends checking your score with different credit bureaus to ensure it reads the same across the board. This will help in spotting errors.
The only thing that could hurt your credit score is a “hard check,” a fancy term for constantly applying for new lines of credit that could flag you as a high-risk borrower.
You Can Get Anything You Want With Good Credit
A 700 credit score doesn’t allow you to finance what you want. For instance, you can’t walk into an auto dealership and purchase the most expensive car using a $20,000 credit card. It doesn’t work that way. It’s important to note that a good credit score is indeed a favorable factor in loan approval. However, it’s not the sole determinant.
Lenders also consider your income and income-to-debt ratio to determine whether you’ll repay the amount. Understanding this balance is critical to managing your financial expectations.
Closing Your Credit Card Improves Your Credit
Closing your credit card could hurt your credit score as it lowers the amount of credit you can access, ultimately impacting your credit utilization ratio. This ratio compares the credit amount you use against the amount you can access.
You should only close your credit card when paying annual fees on an unusable card. But always call your bank or credit company first to find out the safest way to do so.
Errors on Your Credit Report are Unfixable
Banks and credit bureaus alike can make errors when compiling credit reports. If you’re not keen, these errors mess up your overall score.
The good news is that credit report errors are easy to fix. Take time when reviewing your credit report, meticulously checking for late payments, bankruptcies, and negative marks to ensure they don’t impact your bottom line.
A Bad Score is Permanent
Credit scores give you a lot of room for improvement. Raising a lousy score is all about being timely on payments, paying off debt, and notifying the credit bureau of any errors you find within your report.
Be patient if you previously filed for bankruptcy, and take time to get your finances in order. There’s no rush to have the highest score as long as you can eventually attain it.
Debt is Debt
Research findings by TransUnion state that debt is a crucial determinant of your credit score. There are two different types of debt: installment and revolving.
While you can access revolving debt regularly, like a credit card, revolving debt is not easily accessible as it involves occasionally receiving a lump sum of payment. A personal loan is an excellent example of revolving debt. Both of these debts impact your credit score in different ways.
A High Credit Score Makes You Rich
Credit scores measure risk, not wealth. They determine whether you pay your bills on time and in full. A good credit score means you’re a reasonable credit risk, while a bad one means a bad credit risk.
A high salary doesn’t guarantee a high line of credit, but it could mean a credit increase, resulting in a better credit utilization ratio.
A Perfect Credit Score Doesn’t Matter
A perfect score doesn’t matter—that in itself is true. No particular loans or deals are solely for 750 and above credit score club members.
But a good score will help you qualify for good deals on everything. This alone should motivate you to keep a good credit score.
Worry About Your Credit Score When You’re Older
You can apply for your own credit as young as 18. Managing your finances properly from a young age will help you build a good credit score.
Your credit history will be crucial in building your overall credit score. Getting it right will pave the way for a bright credit future. If you’re fortunate enough to grow up in a money-savvy household, you can begin building your credit history as an authorized user in your early teens.
Student Loans Have Nothing to Do With Your Credit Score
Just like your credit card, your student loans impact your credit score. Defaulting on your student loans will lower your credit score.
To ensure you pay your loans on time, opt for auto-pay, where your income is automatically deducted and deposited into your student loan payment account.
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