Debunking Credit Myths

Do not be fooled; credit cards and building credit are extremely important aspects of your financial harmony. There is a plethora of misinformation that can be detrimental to you as a consumer. Below are several myths about credit "debunked".

In order to build good credit you need lots of loans and credit cards

A lot of consumers believe that to build a good credit rating you have to borrow a significant amount of money and quickly pay it off. This is not only false but can be more damaging. While it is important to establish good credit you can do so by effectively managing one to two credit cards and having one to two loans. You do not need to max out the credit limits on your credit cards in order to increase your credit score. By utilizing your credit responsibly you can ensure you proactively manage your credit and do not overextend yourself. Be responsible; use your credit cards only as a last resort when you do not have the cash readily available for the items you wish to purchase.

Checking your credit score can lower it - False

It will not lower your credit score if you check it once every six months or whenever you choose to do so. Just remember to check it via one of the 3 major credit bureaus as there are services that have no affiliations to the major 3 bureaus and can scam consumers.

If you make a higher income, your score will increase - False

Even if you make a million dollars annually, and are late with your payments, your score will still be impacted. An increase in income will affect your debt to income ratio (DTI) and help creditors determine the figure as well; however, if you are late or default on payments it will impact your score.

Age, Sex, and Race can affect a credit score - False

The aforementioned factors are not considered when determining a credit score. The factors considered are your total income, the loans you have outstanding, the amount outstanding and your past performance when paying off debts.