There are a lot of misconceptions circulating on the internet when it comes to credit and debt. Because these topics often leave people with a lot of confusion, it’s important to clear up which of these are myths and which of these you need to be concerned about. Here are a few of the most common credit myths and misconceptions.
Myth: You have one overall credit score.
Many times, the phrase “credit score” is used to sound as if there is one overall credit score. In reality, there are several different credit scores that are calculated differently across various credit bureaus. The three major credit bureaus in the United States are Equifax, Experian, and TransUnion; your credit score may be different depending on which of these bureaus you’re checking.
Myth: Checking your credit score will lower it.
It’s a common belief that checking your credit score will lower it, but this is a myth. When you or everyday financial apps check your credit score, it’s considered a “soft” inquiry, which does not affect your score. Checking your credit score is a good idea, and it’s recommended to check it somewhat regularly (around once per year). It’s also sometimes necessary to check it before making a large purchase or applying for a loan; when a financial institution checks your credit score, it’s considered a “hard” inquiry which can affect your score. If you’re interested in increasing your credit score, there are several things you can do. Read this post for more information and tips on building your credit.
Myth: Closing a credit card will not impact your credit score.
Closing a credit card that has been paid off, especially if you have a strong payment history with it, can potentially hurt your credit score. This is because it affects your credit utilization ratio (the measurement of how much of your total available credit you’re using). However, it’s sometimes necessary to close a credit card that you are no longer using. When this is the case, be sure the balance on the account is $0 and that you’ve redeemed any rewards on your account before canceling.
Myth: Paying off a debt will instantly remove missed or late payments on that account.
This is unfortunately not the case. Missed payments, late payments, and other negative information can stay on your credit report for up to seven years. Chapter 7 bankruptcy will stay on your account for up to 10 years. While it’s important to pay off debts, it’s also important to remember that it takes time for negative information on your credit report to go away.
Myth: Getting married impacts your credit score and makes you responsible for your spouse’s debt.
Your credit score is linked to your own individual information. Getting married will not impact your credit score at all. However, if you and your spouse open a joint account or if you add each other as users onto credit card accounts, then this will be reflected in each of your individual credit reports. In a similar way, getting married will not impact your individual debts or lack thereof. Many couples choose to pay off debts together, but if your spouse has debt when you get married, you are under no legal obligation to pay it off.
Myth: Having debt is always bad and should be avoided.
While it’s true that going into debt can have negative consequences, there are certain debts that are considered good. Student loans, mortgages, and small business loans are examples of these. While there is no guarantee that they will be beneficial, they have the potential to set you up for financial success, making it more likely that you will be able to pay them back.
Credit and debt are complicated topics, often surrounded by conflicting opinions and misinformation. However, understanding these topics is essential for navigating modern financial life. Hopefully, this guide helps to clear up some common misconceptions so that you can feel more confident and in control of your finances.
