A good credit score is vital to unlocking a wide range of financial opportunities. Unfortunately, there are a lot of credit-building myths out there. Believing in them can derail your efforts and set you back. It’s important to learn the difference between credit myths and truths before you do much damage to your credit score.  

These are eleven of the more common myths about credit-building and highlighted how believing in them could hurt you.

Myth #1 – Establishing a bank balance is a great way to build credit

Fact – Your bank balance and other assets are not factored into the credit scoring calculations. How much money you have in your bank or investments has absolutely no impact on your credit. It’s not even mentioned in your credit report.  

Credit scores only take into account how you handle debt and whether you’re a responsible borrower. For credit building, what’s important is your repayment history, credit utilization, and average age of your credit. It doesn’t take into account how much you own and establishing a bank balance won’t help.

Myth #2 – The more credit cards you have, the faster you build credit

Fact – This is one of those credit card myths that can push you further into debt. The number of credit cards you own is not what helps you build credit. When it comes to credit building, what helps to boost your score is paying off all bills on time and keeping your credit utilization low. And one credit card is all you need for this purpose, provided you use it smartly.

Carrying too many credit cards increases the risk of disrupting your credit-building efforts. Having extra credit can tempt you to overspend. If you can’t pay off the bills on time, those late payments will hurt your score.

Having several credit cards but no other types of credit is also detrimental to credit-building. 10% of the total score is based on the types of credit you have. A more diverse portfolio that includes a credit card and home, student, or car loans is better than having only credit cards.

Myth #3 – You can use a debit card to build your credit

Fact – Credit cards and debit cards are two completely different things. They work differently and have completely different benefits. Using a debit card or even a prepaid credit card will neither help nor hurt your credit score. Paying cash for purchases won’t hurt or help either. 

Direct transactions are not reported to the credit bureaus and never end up on your credit report. And if they’re not recorded on your credit report, they can’t impact your credit score. Only payment history on your credit cards and loans is reported to the bureaus. That’s because lenders are only interested in knowing if you’re a responsible borrower and if you’ll repay their money on time.

Myth #4 – Higher paying jobs help build credit faster

Fact – Earning a higher income won’t help your credit-building efforts. In fact, your income isn’t even mentioned on your credit report, so it can’t influence your score. 

How much you earn, save or spend plays no role at all in the calculation of credit scores. Credit scoring calculations are based solely on the way you handle debt. That includes how you use your credit cards and how you pay back your loan or mortgage. Your income can help in assessing your ability to pay your bills. But it is no indication of your probable credit risk.

Myth #5 – You don’t need to think about credit-building until you’re older

Fact – You should start implementing credit-building strategies as soon as possible. The length of your credit history is one of the factors that go into calculating your credit score. Having a long credit history adds points to your credit score. The earlier you start, the longer your credit history will be, adding more points to your score. 

Also, the earlier you start, the more time you’ll have to build your credit score. This will benefit you when it comes time to take a loan or mortgage. Your higher score will qualify you for a lower interest rate, saving you hundreds of dollars. 

Legally, you have to be 18 years of age before you can apply for credit or make financial transactions independently. It’s a good idea to start thinking about building credit as soon as you’re legally allowed to. That is when you turn 18.

Myth #6 – Checking your credit report can hurt your score

Fact – This is a very common myth and one that has prevented many people from checking their credit reports. The truth is, it’s important to check your credit report regularly at least once a year. Your credit report lists your payment history and other relevant financial activities. Knowing these details will help you understand what you may be doing wrong. It will also help you understand where should focus your credit-building efforts instead. 

Another reason for checking your credit report is to make sure that all entries are correct. An inaccurate entry or some fraudulent activity could damage your score. Checking your credit report is the only way to keep tabs on it and make sure it is correct and complete. If you do spot any errors you can file a dispute to get it corrected.

You are entitled to one free credit report once a year from each of the bureaus. Requesting a report for yourself results in what is known as a soft inquiry or a soft pull. Soft inquiries don’t show up on your report or affect your score in any 

What impacts your credit are hard inquiries. These are triggered when lenders, credit card companies, or mortgage dealers access your credit report. You can’t avoid these, however. Getting approved for a credit card, loan or mortgage will trigger a hard inquiry, which will pull your score down a few points. The good news is the damage is minimal and temporary.

Myth #7 – Closing credit cards and accounts you don’t use will help

Fact – It’s better to keep older credit accounts open to build credit, even if you’re not using them. Keeping older accounts open helps your credit score in two important ways.

One: It increases your available credit limit.

Having a higher credit limit lowers your credit utilization ratio. This ratio is based on how much credit you’re using of the total amount of credit available to you. A high ratio means you need additional funds to cover your expenses, which makes you a high-risk borrower.

Credit utilization ratio has the second biggest impact on your credit score, second only to payment history. It accounts for 30% of your total score. The lower your credit utilization ratio, the more points it adds to your score.

Two: It increases the length of your credit history.

Length of credit history has the third biggest impact on your credit score. It adds 15% to your total score.

Overall, keeping your older accounts open works in favor of credit building. This is because lenders want to see how long you stay with lenders. The reason to close older accounts that you don’t really need is if you’re paying high fees to maintain them.

Myth# 8 – Student loans do not affect credit score

Truth – Your payment history on all lines of credit will affect your credit score. This includes credit cards and all types of loans – student, personal, vehicle, and home loans. Paying your credit card bills and loan installments on time will add points to your credit score. On the other hand, every delayed payment will 

Myth #9 – Education level affects your credit score

Fact – Demographics, whether age, race, religion or education levels, don’t impact credit scores in any way. Lenders aren’t interested in the degree you’ve earned or where you earned it from. The only thing they are interested in is that you make your credit card and loan payments on time. This helps them determine the likelihood you’ll repay their loan on time.

Myth #10 – Approaching your credit limit on your credit card does not impact your credit score 

Fact – Credit utilization ratio is one of the factors that go into calculating credit scores. Credit utilization is the amount of credit you’re using compared to the total amount available to you. The lower your credit utilization, the more points you’ll add to your score. 

Approaching the credit limit regularly on your credit card could indicate that you have limited funds. It also means you’re more likely to struggle with making payments on additional loans. This makes you a high-risk borrower which is reflected in your lower credit score. When you’re working towards building credit, it’s a good practice to keep your credit utilization ratio low. 

Myth #11 – A credit repair company can help you improve your credit score 

Fact –There’s nothing that any company can do to boost the credit score that you can’t do yourself. They can’t get any negative information deleted from your credit report if it’s accurate. For example, if your payments were late, no one can remove those entries from your report. They can only be removed if you can prove that the entries were inaccurate. And you can do that yourself. You don’t need to pay any credit repair company to do that. 

Remember, it’s only good credit management that can help improve your credit score.

Believing in these eleven myths about credit building can derail your efforts and hurt your credit score. It’s important to educate yourself about the more prevalent credit score myths early on. This will help you avoid making any mistakes that could cost you dearly when it comes time to apply for a credit card, loan, or mortgage. 

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