09 Jul 5 Myths About Credit
There are many myths about credit and your credit score that are swirling around out there. While most are harmless and have no effect on you whatsoever some are just plain false and need to be set straight.
Your credit score is important when making large purchases and borrowing money of any kind. It can also be used as a tool to gauge your reliability and responsibility levels.
Here are few myths that you need to know the truth about when making credit inquiries or trying to build your credit.
It Doesn’t Matter
This one is false on many different levels. While some people claim that they use no credit, and that using credit only leads to bad things financially, you have to build it somehow. To build your credit you have to get credit first.
If someone claims they have no credit, and that their score is amazing, then that’s great. Just remember, they had to do something to get to that point.
The goal of any kind of credit is to facilitate a need. Whether it’s a need for transportation, a place to call home, or bettering your education. These 3 can come in the form of loans, which depend on your credit.
Your credit score determines if you will get a loan you are applying for and what your interest rate will be. The lower your score the higher your interest rate. Which in turn means the more you will pay back to the lender along with the original amount of the loan.
Even if you have no intention of taking out a loan you still need to have good and existing credit. If you’ve ever applied for an apartment or to rent a house you’ve probably had your credit checked. This is a tool that any landlord can use to determine the likelihood of you paying on time or at all. If your credit score is terrible, has many hits of bad payments or collections, or doesn’t exist the chances of you getting approved are slim.
It’s Easy To Fix
Once your credit goes bad it isn’t easy to fix it. It’s not impossible but it definitely doesn’t happen over night. There are many steps you must take when trying to improve your credit and the best place to start is with your habits. Paying your credit card bills on time, and eventually off, is a good habit to get into to.
This will raise your credit score, raise your reliability rating, and make you look good.
There are also other steps you can take to improve your credit. This can include knowing where your credit score is sitting at all times, not being over 30 percent of the limit of your card, paying on time and more than the minimum, and of course paying it off completely.
Checking It Hurts
Checking your credit score yourself has little to no affect on your score. It’s when multiple lenders start pulling your credit that you may have a problem. This shows you are looking for money and going to many different people to try to get it. As an individual with credit you are entitled to a free report once per calendar year.
You can use any service to view your credit just make sure they are a trustworthy source and aren’t trying to steal your information.
By checking your credit and knowing what is going on you can avoid scams and people who may have stolen your identity. Most of the time people don’t know something has been put on their credit for years because they never bothered to look.
Being proactive about your score is the best way to improve and keep it looking good.
Paying Off Debt Won’t Improve My Score
While paying off your credit accounts won’t raise your score immediately it’s definitely a step in the right direction. This will lower your debt to income ratio and make you look more responsible.
While paying off your debt is great you have to be sure you don’t close long-standing accounts as this can make your credit history appear artificially shorter.
A piece of your credit score is determined by how long you’ve had certain lines of credit and by closing these you can actually hurt your score.
You can still pay off an account and keep it open just make sure that you don’t keep the credit card on you and you remove it from the auto pay feature of your most frequented websites. This will help you avoid adding a balance to a paid off credit card.
There are many myths and false tales about your credit and credit score. Many are harmless but some can have a serious impact if followed blindly. You just have to make sure you stay vigilant with your credit because once it goes south it’s difficult to bring it back up.