There are so many financial myths out there. So many misconceptions I heard consistently while in banking, and really, where can you go to learn this information? It’s not taught in schools. Home Economics is dead. Most parents don’t think about teaching this, and so we have a culture who is highly uneducated about finances.
10 Credit Score Myths Debunked
That is where I come in. I LOVE teaching others about money and finances. Everything I learned in the corporate banking world and from personal experience. Today, we’ll be talking about credit score myths in particular, and a few of them, I’ve even heard from my own family over the years.
1) Canceling a long time credit card with a high available balance and low actual balance will boost my score
This is in fact, false. IF you’ve had a credit card for longer than a few years and IF you have a high available balance and have enough willpower to keep your balance super low or pay it off every month, then, by all means, keep the card. It IS helping your credit. However, keep in mind, that if you should apply for a loan, they will usually count your available balance AGAINST YOU, using the theology that you COULD go wild and spend it all. Where the trap lies is that MOST people cannot keep a low actual balance. They rack it up over time and end up with a mountain of debt, so please use extreme caution. The world is hell-bent on getting your money!
2) Checking my own score hurts my score
Checking your own score doesn’t affect your score at all.
3) Too many inquiries hurts my score
Part of this is true. If you are having a lot of inquiries over the course of years, this can definitely hurt your score, but if you’re say, getting a car loan, they give you within a certain period of time (usually 30 days) to apply for multiple loans. Same with insurance companies, and so on.
4) You must be in debt to have good credit
Wow, this is a major one, and I’ll tell you, I have fabulous credit, an A to be exact. Do I have debt as one of my credit score components? Nope, not a lick of it! The loans I’ve had in the past are paid, good standing accounts, and I do not currently hold any debt. The last time I tried to apply for a car loan, I was approved. When asked, I simply explain that it is my philosophy not to have debt. They usually don’t believe me, as this really goes against the grain of our culture, but never-the-less, I am approved. I remember when I applied to rent my home. I had to provide all kinds of banking info and credit report info because I work at home. Always be sure to keep your records and be completely honest. If you have a nice fat savings account, having those records will greatly help as well! 😉
5) My debit card can’t hurt my score
Ouch. It actually can! If it’s attached to a line of credit or overdraft protection and it’s abused, it can ruin your credit. Likewise, many banks pull ChexSystems and your credit score before you open a checking account! If your on ChexSystems (meaning you’ve defrauded a bank in the past), you’ll find it extremely hard to open an account. In such cases, a credit union is your best bet, but even then, you might not be approved. Solution: Don’t get on ChexSystem. Take care of your credit. Pay your bills on time. Simple.
6) I can’t build credit without a credit card
You don’t have to get a credit card to improve your credit, however, there are little things you can do to improve your credit, like having a small secured loan, paying all bills on time, acquiring car insurance, getting a small car loan, etc. If you really want to build your credit up without a credit card and you have no debts at this time, a secured loan at a credit union is your best bet.
A secured loan is basically having say, $1k in your savings account, and then taking out a loan for $1k. If they don’t receive the payment, they take it from your savings automatically. In fact, you can even sign up for automatic payments to be taken from said account, and not have to worry about it at all, yet it’s helping build your credit.
7) Co-signing won’t hurt my credit
Oh boy! NEVER, EVER under ANY circumstance co-sign for anyone. Not even family! I have personally learned this lesson the hard way unfortunately. If you don’t want to take my word for it, read Proverbs. Proverbs 22:26 and Proverbs 6:1-3 is a good place to start.
8) My credit score is free of errors
Yeah, now this one I have to chuckle to myself. There is only ONE printed thing in the entire world that is free of errors (The Bible) and your credit report isn’t it. 🙂 79% of credit reports contain errors and the other 21% had plastic surgery to make it perfect.
9) My credit score is beyond repair. It’s hopeless.
If you’re thinking that today, I encourage you to stop telling yourself that. Nothing is beyond repair. 50% of American’s credit scores are below 720!
10) If I pay off my delinquent collections, it will be taken off my credit
That’s true…in 7 years!!!! Credit reports go back 7 years unfortunately. So, even if you pay off that bad debt, it’ll still show up for a really long time. Solution: pay your bills on time. Don’t go to collections.