Most people with lower incomes often avoid thinking about a credit card as there can be a lot of apprehension regarding credit scores. If you are trying to rebuild your credit score, there are certain points you need to put into consideration. Excellent planning and the necessary information can help you build a good credit score rather than hurting it. In this article, we are trying to debunk all the myths related to credit scores so that you can get a clear picture to make correct financial decisions.
Myth/Fact #1: Avoid Using a Credit Card, Use Prepaid or Debit Cards for Payments
One of the most common myth people believe for not getting a credit card is the fear of getting a debt or a bad credit history. This statement can be true but only for those people who manage their finance poorly. If you are a responsible individual, you will try to use your card to the limit and make all the payments in time. This will build a strong credit card history for future which is not possible with debit cards. If you wish for a loan, then lenders will always analyze your credit score to see if you can pay off the loan in time. If you use the money wisely through credit card, you can acquire a home loan, car loan or even get payday loans at a time of emergency.
Myth/Fact #2: Having a Balance on Your Credit Card is good for Your Score
A most dreadful myth most of the people believe and ruin their credit score. Delaying the payment of your credit card will lower down your credit score. If you want to improve the credit score, make full payments of your credit card bill. If you don’t have enough finance, at least pay the minimum amount which will not harm your score. Never miss the payment even by a day as it can lead to negative impact on your credit card history. Also, not paying your monthly credit card charges will increase the amount due including the penalty for late payment. Thus, if you wish to have a good credit score for the loan, then pay your credit card bill payments in time and make sure not to use it excessively.
Myth/Fact #3: Avoid Checking Your Credit as it will Drop Your Score
This statement is a myth. Checking your credit score is considered as a soft analysis which won’t harm your credit score. If the lenders or creditors are making hard inquiries for your credit, then only your credit score will lower down by few points. We advise to keep a track on your credit history on a bi-annual basis rather than keeping an assumption for credit scores.
Myth/Fact #4: Closing Inactive Accounts Improves the Credit Score
It’s a myth that closing down old or inactive accounts will help in improving your credit score. What you don’t understand that canceling your old account will lower down your credit score as the credit history will appear to shorten than what it is in reality. If you don’t want this to affect your credit score, reduce the credit card limit before shutting down any old accounts.
Myth/Fact #5: The Negative Record Gets Removed from Credit Report Once all Debt is Paid Off
Negative records like charge-offs and bankruptcies show in the credit card holder’s report for a minimum of 7 to 10 years from the date it posted. Paying off the debt before the end date doesn’t improve your credit report as you can’t rebuild a good credit history that fast. Though, the account will get paid marked by the company. Thus, it’s advisable to clear off your debts within stipulated time to improve your credit score or at least prevent any negative remarks.
Myth/Fact #6: You won’t be Held Responsible if you are Co-Signer for the Account
When you become a co-signer for a loan, you get linked to someone’s credit card and accounts. If the person defaults the payment for the loan taken, the firm can take legal actions against you for the non-payment of dues in time. Also, this will also give a negative impact on the credit score report. So, be careful before you become co-signer with any other person for a loan as you might put yourself at greater risk in the dues won’t get paid in time.
Myth/Fact #7: Clearing off a Debt will Get 50 Points on Credit Score Report
The financial firms use sophisticated algorithms which take many factors into consideration before finalizing your credit score. Even for experts, it’s difficult to predict on the points that can affect your credit history. Even a single late payment can result in an enormous impact on a person having high credit score. The same scenario with a bad credit history person will have a completely different outcome. So, there is no standard way to pinpoint the things that can affect your credit history. Only by paying credit dues in time will have positive effect on your credit score.
Myth/Fact #8: Annual Income Give Positive Effects on Credit Score
Once again this is a misconception among people. The amount of money you make monthly will only affect your credit score is by paying the bill in time. How much you earn annually has absolutely no impact on your credit score and your income is not recorded by the company. But how you pay your bill does for sure.
Myth/Fact #9: People With Bad Credit Scores Can Never Get a Loan
This statement cannot be considered accurate as many financial firms in the market today are willing to give loans to people who have bad credit scores. Higher risk loans often have higher interest rates and the person may need collateral against the loan. These firms can trap the person under high-interest rate and put more financial pressure than one can bear.
Myth/Fact #10: Do Credit Scores Get Sealed in for Six Months
There is no truth behind this statement as your credit score keeps on revising as the data on your report changes. The changes can be weekly or monthly depending on the information the credit bureaus collect. Keeping tabs on your credit report on a bi-monthly basis is highly advised.
With all the information, we hope that you won’t back down getting a credit card yourself. The only full-proof way to keep your credit score on the positive side is to pay the bill in time. Limit your expenses under your credit limit and you will never have to face financial stress or bad credit score.