When you are not knowledgeable on a subject, you turn to outside sources to learn more. Some common ways to acquire knowledge are from a loved one, friend, co-worker, social media platform, blog, experts, and books. Although these avenues of learning can prove beneficial, not all sources are accurate. Consequently, you absorb and apply false information or myths to your life, making matters worse. That is what often happens when dealing with the topic of credit.
Credit is an essential component in your personal and professional life. Despite its significance, credit is a subject that very few people are knowledgeable in, making it likely that they will turn to inaccurate sources for understanding. Unfortunately, they believe myths that ruin their credit and complicate their lives.
Common Credit Myths
Are you guilty of believing credit myths? If so, you are likely paying a steep price. How do you resolve the matter? You start by learning the truth. Below are some common credit myths and how believing or following them impacts your quality of life.
Checking Your Credit Will Lower Your Score
You would be surprised how many people have no idea their credit history or score, because they have never checked. They have come to believe that checking your credit will lower the score. However, if you do not know where you stand, how can you make changes to establish, sustain, or improve your credit?
Truth: There are two types of inquiries or requests to view a credit report. A soft inquiry is a request often made by the consumer or during the pre-approval process for a loan or credit card. These inquiries do not affect your score. A hard inquiry is a company’s request when you apply for a product or service. Hard inquiries, notably multiple inquiries in 30 days, can cause your score to drop.
You Can Max Out Your Credit Card (As Long As You Pay The Minimum)
Another credit myth is that it is okay to use your entire credit card limit as long as you keep up with minimum payments. The trouble with believing this concept is that you have cards you cannot use. The interest and fees continue to pile up, and you are overwhelmed with debt before you know it.
Truth: Credit utilization is the amount of credit you have versus what you have spent. When you max out credit cards, your credit utilization, and credit score drop. Ideally, you should not spend more than 30% of your available credit card limit. For example, if you have a $10,000 line of credit, you should keep the balance at or below $3,000 to prevent a drop in your score.
Only Loans And Credit Cards Appear On Your Credit Report
Some people believe that credit reports only show your credit cards and loans. As a result, they assume that their credit will remain positive if they do not have these types of accounts.
Truth: While credit card and loan companies are the only service providers that initially share account information with credit bureaus, that is not all you will find on your report. You can find everything from unpaid utilities to medical bills on your credit report. Some companies do not report when you open the account or your payment history. However, if you fall behind on your financial obligations, it is added to your credit report. Therefore, you should check your credit report regularly and be financially responsible to avoid adverse reports. One way to improve your credit even during times of financial stress is to look for emergency loans for bad credit from companies that will help you build your credit by reporting your positive payments to the credit bureaus.
You Do Not Need To Improve Your Credit (They Have Bad Credit Options)
There are plenty of products and services to accommodate people with less than satisfactory credit. So, why do you need to improve your credit score? What consumers do not understand about this myth is that they will pay more over a lifetime for products and services than someone with fair to good credit.
Truth: Sure, you can get a personal loan, car, mortgage, student loan, and other services with bad credit. However, did you know that your negative report will result in higher interest rates, initial deposits, and associated fees? When you do not improve your credit score, you waste a lot of money that could be used to improve your quality of life.
Do not be ashamed if you find out that you have believed a credit myth. There is a lot of misinformation out there that sounds truthful, but lacks facts and credibility. Now that you know the truth, you can start making changes to improve your finances going forward.
