Credit Myths You Need to Know About
Originally Posted On: https://www.credello.com/
You might hear all kinds of things about your credit and what affects it. Maybe a parent, friend, or relative tells you something. It can be hard to decide what’s true or false.
In this article, we’ll discuss some credit myths about which you should be aware. Knowing about these should put you in a better position to avoid making financial mistakes.
1. Personal Loans Always Harm Your Credit Score
Maybe you’ve heard from someone that personal loans impact your credit score by causing it to dip. This can be true but is not always the case.
When you secure a personal loan from a lender like a bank or credit union, you pay it back in fixed monthly installments. Some people get it into their heads that borrowing money is automatically harmful and your credit score will drop if you do it.
The act of borrowing money through a personal loan will not start to negatively impact your credit score unless you begin to miss your payments. If that happens, defaulting on the loan is possible, and your credit score will drop accordingly.
However, getting a personal loan can actually help your score as well. If you pay off the loan on time and don’t miss any payments, that should raise your score. Keep that in mind if anyone tells you that taking out a personal loan is automatically harmful to your financial situation.
2. Carrying a Little Credit Card Debt is Good
This is one of the more harmful myths about credit that you might encounter. Some individuals seem fixated on the idea that it’s somehow a good thing to carry a bit of credit card debt that you don’t pay off at the end of each payment period.
That is not the case. It’s true that having a little bit of residual credit card debt each month will not torpedo your credit score, but it also won’t help it. In fact, it can cause it to incrementally lower as time passes.
Make the effort to pay off your whole credit card balance each month. That is a simple way to keep your credit score healthy.
3. A Low Credit Score Means Not Getting a Credit Card
If you’ve got a lower credit score, that does mean you won’t be eligible for some of the more high-end credit cards. While you probably shouldn’t waste your time applying for an Amex Platinum card, there are plenty of others for which you might still be eligible.
For instance, you might get a secured credit card. This is a card that the company will only give you if you pay them a sum of money upfront to guarantee your credit line. By doing this, you’re less of a risk to the issuing card company.
Don’t assume that because you have mediocre credit, you can’t get a credit card. Your selection may be limited, but there are usually still some viable options.
Don’t Believe These Myths
Credit myths are everywhere, so watch out for the ones we mentioned. Don’t believe someone who tells you that with a low credit score, you automatically can’t get any type of credit card. You may still be eligible for certain types if you hunt around for an appropriate one.
Don’t carry a credit card balance each month if you can avoid it, even a small one. Doing so can cause your credit score to decrease gradually. Also, don’t believe it if you hear that getting a personal loan will automatically harm your credit score. That’s only true if you’re negligent in making on-time payments.
Now that you know about these common credit myths, you should be better positioned to make smart financial decisions.