Ed note: There’s a lot of “common knowledge” that isn’t good knowledge. It is a misconception or myth that keeps getting repeated. There are several of these misconceptions we wanted to clear up regarding credit. Leer en español.
Have you ever made a decision you thought was smart but it ended up hurting you? For example, maybe you pulled an all-nighter to study for a test, not knowing how important sleep is for retaining information.
Believing certain statements that sound true and acting on them could actually have serious ramifications for your credit health. With this in mind, let’s go over a few key myths to avoid:
Myth #1: You need to carry a balance on your credit card to have a good credit score.
Reality: You don’t have to carry a credit card balance from month to month to build your credit score. Typically, the balance reported to the credit bureaus is from your last statement, not what is carried over to the next statement.
Takeaway: Companies want to see that you can manage debt well, so it’s important to use your credit cards. However, whenever you use them, pay them off in full as often as you can. Unless you’ve scored a 0% APR card, leaving a balance means you’ll be charged interest, which could become costly.
Myth #2: You only have one credit score.
Reality: You can actually have many credit scores, as there are dozens of scoring models that companies may use to calculate your score.
Takeaway: Be wary about paying for one particular credit score—what you get may not match what lenders use. In general, most credit scores are calculated and affected by similar factors. Focus on one or a few scores to gauge how you are doing.
Myth #3: Checking my credit will hurt my score.
Reality: Checking your own credit is a soft inquiry, which doesn’t affect your score.
Takeaway: Since it won’t lower your score, you should actually monitor your reports and scores frequently to make sure everything is correct and dispute errors/fraudulent activity quickly.
Myth #3: Your credit reports are always accurate.
Reality: A 2013 FTC study found that one in four consumers identified errors on their credit reports that might affect their credit scores.
Takeaway: Your credit scores are based off information from your credit reports. If you want your scores to accurately represent your credit history, it’s up to you to regularly scrutinize your report from each bureau and dispute any errors you find.
Myth #5: Cosigning a loan can’t harm my credit.
Reality: Co-signing a loan means you’re taking on legal responsibility for the account.
Takeaway: Think carefully before cosigning a loan. If the primary co-signer makes late payments or defaults on the loan, you credit may be affected and you can be held responsible to pay back the debt.
Sometimes a little education is all you need to better your financial life. The next time you encounter any of these credit myths, keep these truths in mind and you should be on your way to improving your credit health.
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