Often we are stopped from the actions that we need to do to solve our problems by some myths or rumors about unpleasant consequences. To get financial support from creditors, you just need to choose the most suitable type of credit and the best offer among others, corresponding to your needs. However, common credit myths is holding back many from filing an application, raising concerns about the undesirable outcome.
The good news is that not everything that you could hear about loans has a solid foundation and is true. For example, you may have heard that the average credit rating in different states may affect your creditworthiness and the likelihood that you will receive approval from the creditor. In fact, this does not determine the probability for you personally, because each lender will study your particular circumstances when considering your loan application.
There are quite a few such common credit myths, but most often they have nothing to do with the real situation. You may be frightened by bad aftermath, or vice versa, promise a quick improvement in the status of your credit, but before you make a decision, find out which common credit myths really should not be taken into account.
Such a reasonable approach will allow you to avoid wrong decisions that can affect your finances badly. In some cases, you will not receive the necessary financial assistance, and in others you will get into unwanted debts, from which it will be very difficult to get out. Further you will learn about the most common credit myths that are not worth listening to if you want to improve your credit.
One late payment will not lower your rating
Life sometimes brings us surprises, both pleasant and not so pleasant, so it may become difficult for everyone at some point to make timely credit payments. If you were a responsible and punctual borrower before, then you might think that a lender might ignore one such case and forgive you.
The meanness of this from common credit myths is that even a single overdue payment on a loan or credit card will immediately badly affect your rating and lower your credit score. You must remember that no one owes you anything and you sholdn’t count on lender leniency.
Yes, now some lenders give their customers the opportunity to make a monthly payment a few days or weeks later without having to inform the credit bureaus about this. In some cases, you may be able to make a payment even after a month, but not later.
It is worth remembering that in the near future you will have to pay the next monthly payment. Therefore, do not abuse this opportunity and try to make a payment as quickly as possible. If you exceed at least once the period that you are given to make a payment, then this will immediately damage your creditworthiness and lower the rating.
Checking your credit reduces your credit score
You have probably heard about hard credit checks and how they badly affect your credit score. The truth is that this is right only when such tough checks are carried out by lenders, when you are trying to get a loan. This effect is especially negative when for a short period several creditors carried out a hard check of your credit report. In this case, your credit score may decrease by 1/10 of the total score.
As for your personal checks of your credit rating, the decrease in the score in this case applies to common credit myths, which have no basis. On the contrary, it is recommended to regularly monitor your credit in order to track changes and to be able to take timely necessary measures to improve it.
You have every right to check the status of your credit as often as you see fit, without negatively affecting it, unlike what common credit myths tells. The only thing you should keep in mind is that at each of the American credit bureaus you can request your credit report for free every year. On the other hand, now many companies offer free information on the status of your credit every month or even more often and all this without bad consequences for it.
A new credit card harms your account
This statement can only be partially true, since this reducing is temporary. It largely depends on how you will use the newly opened credit card in the future. The best option for your rating is to use a new credit card with a lower interest to transfer the balance from your other cards, where the APR is higher.
Many lenders offer this service to new customers on attractive initial terms. At the entrance you can even get a zero interest rate for several months, while the promotional period lasts. So you get a great opportunity to pay off your old debt during the grace period at 0% and thereby greatly improve the condition of the credit.
A small temporary decrease in the score will result in a significant increase further. Of course, at the same time, you must responsibly use your new credit card, paying for her purchases and timely making all that you owe.
At the same time, remember that several new cards will immediately lower the status of the credit, so you should not get carried away with opening new accounts in a short time. It is better to gradually pay off your debts, carefully controlling your expenses.
One of the best ways you can use your new credit card to improve your credit rating is the balance transfer. Getting a credit card with a lower interest rate and then transferring your balance from another card will help you pay off your debt faster, ultimately raising your rating.
For a good credit you need to have a very high income
One of common credit myths tells us that you must have a high income so that you can have good credit. This is a fallacy that many take for granted and therefore do not take the necessary steps to gradually increase their credit rating.
You should not postpone the improvement of your credit status until later, when the best times may come. You can begin to move in this direction now and thereby bring closer the best times.
Start managing your personal finances and distributing your income more efficiently. So you will find more abilities to pay off your debts, as well as be able to pay a long time in a timely manner. Not your income level but stable timely payments affect your credit score best.
Of course, if you have a lot of money, then it will be easier for you to find opportunities for paying off debts, but this says almost nothing about how responsible as a borrower you are. You may be a millionaire, but not pay your bills on time and your credit status will be bad, regardless of what common credit myths tells us about.
Credit rating depends on the amount of your debt.
Your credit status is undoubtedly affected by the amount of your total debt, but not independently and not directly. The amount of debt determines your credit in relation to other indicators. In credit cards, we call this a balance, which is determined by how much you use the credit limit opened to you.
Your use of a credit tells lenders how much you need money, which means risks you carry for them. The threshold for lowering your credit score is 30%. This means that if a credit line of $ 10,000 is opened for you, then when using more than $ 3,000 of credit funds, your score will begin to decrease.
For a high credit rating, there must be a balance
Many credit card holders believe that in order to maintain their credit score at a good level, they must have a balance on their credit cards. This one of common credit myths is periodically supported by some companies, saying that it will be regarded as an active and skillful use of credit and then will increase credit score.
In a way, they are right when it comes to one credit card, but this does not mean that there must be a balance on all your cards. In fact, less commitment on you means less risk to lenders. The lower your ratio of total open credit to total balance, the more reliable you are for creditors.
You do not need to close all credit cards, since still the ability to manage different types of credit positively characterizes you as a borrower, but one or two cards with a balance will be quite enough. It’s better to leave in use those cards that you have the longest, the most expensive for you and have a good history of use without late payments.
Does your debt-to-income ratio affect your credit status?
Unfortunately, not all users of loans and credit cards understand financial glossary well. Often this causes confusion in terms and from there come common credit myths and a misunderstanding of what affects the credit score.
The rating of any borrower is affected by the ratio of debt to credit, and not debt to income. Your income will be deliberated directly by the lenders during the consideration of your application for a new loan to determine the amount of the monthly payment that you could afford to pay.
At the same time, credit bureaus calculate the credit score, each according to its own method with slight differences, and your income is not taken into account. They determine the level of risk for creditors, which depends on your responsibility and solvency.
Need to close old credit cards
common credit myths also tells us that old and unused credit cards need to be closed so that your rating does not decrease. This is a misconception, as the length of your credit history significantly affects your borrower rating. Closing an old credit card, you interrupt your history and your score decreases.
Of course, also reckon how much the cost of a particular credit card costs you, is there an annual fee or a high interest rate. Perhaps in some cases it makes sense to sacrifice a few points if your old card costs you too much. Choose the oldest of the inexpensive to maintain and the cheapest of the old credit cards to leave it open.
Credit is combined upon marriage
Your credit will be changed in conjunction with your spouse’s credit only from the moment you start making joint purchases on credit, but this does not apply to the credit rating that you had before marriage.
The view that when you marry you can combine your old credit obligations with your spouse’s credit is no more than one of common credit myths. Some expect this to improve their low credit rating by combining it with a spouse’s credit. Your old debt will remain your old debt. Only joint loans in the future will affect your credit rating together.
Paying debts to collection companies will improve your credit
Paying past due debt that has been transferred to collectors will not improve your damaged credit rating due to unpaid debts. This one from common credit myths has no basis.
But this does not mean that these debts do not need to be paid at all, because you will be subject to legal and psychological pressure from companies collecting debts. However, you should not rely on the fact that when paying a debt, information about non-payment will disappear from your credit history and your credit score will immediately increases.
Do not be guided by common credit myths that mislead you
Here we looked at some of the most common credit myths that have become most widespread, which cause erroneous financial decisions. There are other loans misconceptions that should be avoided when making decisions.
You can use our financial blog to learn from it about loans and managing your personal finances. All that is necessary for a true understanding of how loans work. Also find out how you can improve your credit status.