Credit Karma Tidbit #3: 10 Credit Myths Debunked!
Don’t believe everything you hear, especially when it comes to money. It’s a shame that financial literacy wasn’t a required class back in school; it may have saved some consumers from being burdened with the national average of $7,526 in credit card debt and a whopping $28,425 in student loans, according to recent Credit Karma data. Most of us figured out how to handle money and juggle our finances thanks to a combination of parent’s advice, friends’ habits, and learning from our own mistakes.
Along the bumpy learning curve of financial literacy, consumers pick up some misinformed advice and bad habits when it comes to money. Did you ever hear someone tell you that you should keep a balance on your credit card? How about the myth that you’ll hurt your credit score if you check it? Credit Karma is debunking these myths and setting a few facts straight about credit, so you can learn the right way to establish a good financial foundation.
Credit myths debunked!
- Everything is set in stone. Not true; if you have good credit, you can negotiate terms and lenders may be willing to work with you to keep you as a customer.
- Carrying a balance on your credit card is good for your credit. The best thing for your credit is to use it wisely every month by paying off your balance on-time. Carrying a balance month-to-month only ensures that you are throwing away money in interest payments.
- Retail credit cards will save you money. While some retail credit cards will offer a rewards program or small discount on purchases, they are also notorious for having the highest APR. Plus, having a credit card at a specific store may encourage you to spend more money and more often. Spending anything on a retail card, even at a 15% discount, is still 100% more money spent than if you didn’t buy anything at all.
- Checking your credit score damages your credit score. Pulling your own credit score, through a site like Credit Karma, is considered a soft inquiry and won’t lower your credit score even one point.
- Your credit score will only affect your ability to get credit or a loan. Nope. Employers, insurance companies, utility companies, landlords, and cell phone providers are part of a more extensive list of people who check out your credit score.
- Lots of credit cards show you are creditworthy. That depends. If you own a lot of credit cards and juggle your balances so you pay them off in full every month and don’t accrue debt, then that’s great money management. But if you have tons of credit cards, have outstanding balances on them, and have a hard time managing multiple payments and sticking to a budget, than having a ton of credit cards is your ticket to Debtsville and, after that, a stop at Poor Credit City.
- You just need one credit card to build credit. You can use one credit card to build credit, but having a mix of credit is an important factor of attaining great credit. Auto loans, mortgages, personal loans, student loans, and your credit card all impact your credit score. A variety of credit—that is managed responsibly, of course—shows lenders that you are creditworthy and responsible enough to be extended more credit.
- As long as you pay the minimum, you’re fine. Technically, this is true. You will get by paying the minimum and pay on-time; it just might take you years to pay off the balance and cost you a few thousand extra in interest. Always pay more than the minimum on your credit card to get out of debt faster and save time and money in the long run.
- There is only one credit score. There are actually several credit score models that come from different providers and credit bureaus. The most well-known credit score is the FICO credit score; Credit Karma uses the TransRisk credit score from TransUnion. While they are slightly different formulas, they all measure creditworthiness according to the criteria on your credit report, and scores basically fall within the same range (poor, fair, good, and excellent).
- Your credit score isn’t that important if you aren’t looking to take a loan or credit card anytime soon. Wrong. Your credit score isn’t just about your creditworthiness to lenders and banks, it’s significant as an assessment of your overall financial health. It’s a snapshot of your spending habits, your approach to borrowing money, your reliability for paying, and your money management skills. That’s why employers and landlords will check out your credit score too—it's an insight into your financial well-being. Focus and work on your overall credit health, and that good karma will reflect in your credit score.
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