Credit plays a major role in our financial lives. We rely on it to make big purchases like buying a home or car and even smaller daily transactions.
Despite its importance, many people have misconceptions about credit that can impact their financial well-being.
To help you understand credit better, here are some insights from credit experts that break down common credit myths.
Credit Scores Are Permanent
Many people believe that once you have a bad credit score, you’re stuck with it forever. This is not true. Your credit score is always changing based on your financial behavior.
If you have a bad credit score, it’s not a life sentence. You can actually improve your credit by:
- Making on-time payments
- Maintaining Credit card
- Responsible with finances
It may take time and effort, but turning your credit score around is possible.
Checking Your Credit Score Lowers It
Many people think that just checking their credit score will make it go down. This is a myth. When you check your credit score, it’s called a “soft inquiry,” which does not affect your score.
On the other hand, a “hard inquiry” can affect your credit score. Hard queries happen when you apply for new credit, like a credit card or a loan.
Even though hard queries might lower your score a little, they are just one part of your overall credit history. So, don’t be afraid to check your credit score regularly- it’s an excellent way to understand your financial health and ensure everything is correct.
Closing Credit Accounts Improves Your Score
On the surface, closing a credit card might seem like a good idea to manage credit problems. However, this is not true. When you close a credit account, you are reducing the available credit amount and increasing your overall credit utilization ratio, which can lower your score.
Additionally, closing an old or well-established account can shorten the period of your credit history, affecting your score.
Instead of closing accounts, focus on paying off any outstanding balances. Take advantage of financial assistance for Hispanics in Florida to help you create a plan for paying off debt and managing credit.
Paying Off Debts Erases Payment History
A common myth is that once you pay off a debt, its history disappears from your credit report. This is not true. Even after you pay off a debt, the record of that debt remains on your credit report for years.
The good news is that paid-off debts are usually seen in a positive light, especially if you made your payments on time. This history of timely payments can actually help improve your credit score over time.
On the other hand, if you missed payments or defaulted on the loan before paying it off, those negative marks will also stay on your report for several years.
Only Big Purchases Affect Your Credit Score
Many think only big purchases, like a house or car, can affect their credit score. However, this is not true.
Even small, everyday purchases can impact your credit score. If you use a credit card to buy groceries, fill up your gas tank, or pay for a cup of coffee, these transactions are all recorded.
How you handle these smaller transactions matters. If you always pay your credit card bill on time and don’t charge more than you can afford to pay off each month, this will help to improve your credit score. On the other hand, if you miss payments or have a high balance, your credit score could go down.
Debit Cards Help Build Credit
Some people believe debit cards can help build their credit score, but this is a common misconception. Debit cards are linked directly to your bank account, and the money you spend is immediately deducted from your balance.
Because you are using your own money and not borrowing it, debit card usage does not get reported to credit bureaus and, therefore, does not affect your credit score.
To build credit, you need to use credit products, such as:
- Credit cards
- Loans
- Lines of credit
However, to positively impact your credit score, it’s important to use them responsibly and make all payments on time.
Married Couples Share a Credit Score
It’s a common belief that once you get married, you and your spouse share a single credit score. This is not true.
Each person has their own individual credit score, which is based on their credit activities. When you get married, your credit histories do not merge, and your credit scores remain separate.
However, you and your spouse can affect each other’s credit scores if you open joint accounts or become authorized users on each other’s credit cards. Any financial behavior on these shared accounts will impact both individuals’ credit scores.
Credit Repair Companies Can Instantly Fix Credit Scores
Be wary of any credit repair company claiming they can instantly fix your credit score. Credit repair companies often charge high fees and make false promises to remove negative or inaccurate items from your credit report.
However, the truth is that no one can remove accurate information from your credit report. Negative items can only be removed if they are incorrect or outdated.
The best way to improve your credit score is to control your financial behavior and make responsible decisions with credit. There’s no quick fix for a bad credit score, but with time and effort, you can see improvements in your score.
Income Directly Influences Your Credit Score
While income is crucial for managing finances, it doesn’t directly impact your credit score. Credit scores are determined by your credit history, including payment patterns and debt levels. However, a stable income can help you manage payments more effectively.
Additionally, having a higher income may make qualifying for larger lines of credit or loans easier. But ultimately, your credit score is based on how well you manage and pay off those debts, not just how much money you make.
Debunk Credit Myths With These Insights From Credit Experts
Debunking these common credit myths is essential for better credit health. Understanding what truly affects your credit score and implementing healthy financial habits can lead to significant improvements.
Always seek advice from trusted credit experts and stay informed about your financial options. Remember, improving your credit is a marathon, not a sprint. Stay patient and consistent for the best results!
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