Myths, misconceptions, mistaken belief about credit abound but knowing the truth is worth it if you want to keep your personal credit history and credit score in good shape. In this article, we take a look at common credit myths and talk about the truth behind each myth.
MYTH: You can’t have a bad credit score if you are financially responsible.
This is not necessarily true. Some behaviors which might seem like a good strategy to manage your finances can be bad for your credit. For example, not using a credit card at all will not help you in building your credit score. To build a solid credit score, you must prove your capability to handle debt and credit. Thus, not having any debt at all may seem like a safe way to avoid debt problems but you won’t have a credit score.
MYTH: A lower credit limit is better because it discourages overspending.
In line with the first myth, this is an example of a behavior which might seem like good for your finances but bad for your credit. 30% of your credit score is based on credit utilization. Ideally, you should have a low credit-to-debt ratio to keep your credit score in good standing. However, if you have a low limit, it can be difficult to keep this ratio at a low-level especially if you only have one credit card. A higher credit limit will be an advantage as long as you know how to use it in control.
MYTH: Checking your credit will pull down your score.
Not true! Hard inquiries or inquiries made creditors in response to your application can affect your score. However, checking your own credit will not hurt your score at all. In fact, consumers are advised to check their credit regularly to make sure that all information contained in their report is accurate.
MYTH: Carrying a credit card balance improves your credit score.
This is a dangerous myth to believe in because it encourages credit cardholders to leave balances unpaid, increasing the risk of debt build-up. The reality is that carrying a balance from month to month will not boost your credit score. The only thing it does to a card holder is make you pay additional interest rate charges. The best way to manage credit card debt is pay your monthly balance in full, leaving no balance at all.
MYTH: All you need is a credit card or credit cards to build credit.
Aside from revolving credit, managing different types of credit in your name is a great way to prove credit-worthiness. You do not need to own multiple credit cards to raise your score. One or two credit cards should be enough, depending on your needs and lifestyle.
The types of credit used makes up 10% of the FICO score. Therefore, having at least one or two types of loans (car loan, personal loan, or mortgage) in your name will strengthen your credit history and credit score, assuming that you are consistent in submitting with your monthly loan payments on time.
source: creditcreators.com
