Whether you like it or not, your credit score plays a huge part in your financial life… and not just when it comes to loans. Your credit score is important when it comes to renting properties, for deciding your premium for auto or home insurance, and even for your cell phone bill plan. But credit scores can be confusing. There are plenty of myths surrounding them and hear-say when it comes to our scores and what affects them. And sometimes, believing these misconceptions can cause more damage to your score than you think.
It’s time to talk about these common misconceptions and teach ourselves the right practices when it comes to our credit health. We’ve decided to debunk 10 common myths surrounding your credit score and finally get to the bottom of these rumours.
Myth 1: Checking your credit score will hurt it.
We recently debunked a common myth and discovered that a credit score check is not bad for your credit. It was also discovered that 1 in 5 Canadian credit card users believe that a credit score check will hurt your score, according to a 2018 study by Discover. Contrary to belief, this is a common misconception and you can request your credit score at any time using a soft-pull inquiry. This will not trigger any penalty points to your credit score.
Myth 2: Closing credit card accounts will improve your credit health.
Where cancelling a credit card decreases your available credit, limits the credit history for that account, and possibly, your credit score along with it – it doesn’t delete the history you had on that card already. Any negative credit card accounts will generally stay on your credit report for six years from the time your account went delinquent, which will not help with your credit health.
Myth 3: Leaving a balance on your credit card increases your credit score.
If you leave a balance remaining on your credit card, it will neither decrease nor increase your credit score. Instead, your balance is being carried over each month which results in paying more interest than necessary. Since leaving a balance on your credit card doesn’t help your credit score in any way, it’s more beneficial to pay your balance off in full each month. This allows you to avoid high interest, and in time, improve your credit score.
Myth 4: Higher wages bring higher scores.
It’s sometimes believed that if you have a higher salary, your credit score will automatically be higher. This is not true. Whereas, if you earn more money you may have more available funds to pay down debts, unless you pay these off, your score will not improve. Credit scores reflect how well you pay off any of your bills, not how much you earn.
Myth 5: Paying the minimum keeps my score-up.
Not necessarily. A lot of creditors will look at how much money you owe versus how much debt you have available. So, if you have a huge amount of debt and are only paying the minimum requirement each month, it may take a longer time for you to clear your debt. This means that it may not make your credit score go up but instead, bring it to a stand-still. You may need an extra push to bring that score-up. To find out how we can help improve your score, check out our credit boosting product here.
Myth 6: All credit reports are the same.
Credit reports are produced by the two national credit bureaus, TransUnion and Equifax. Both credit reports may show different scores and information due to varied scoring models and algorithms. That’s why it’s recommended to keep an eye on both credit bureau reports. You can find out more on why your credit score is different from website to website here.
Myth 7: I don’t need to worry about my credit score until I’m older.
This is a common mistake young people make. Since you are legally able to get a credit card from the age of 18, you should begin looking after your credit score then. The length of your credit history plays a huge factor in your credit score, so the sooner you establish credit the better.
Myth 8: Getting a loan to pay debts will help me save.
Although it may seem convenient to have a loan that pays off all your bills, if you have not already begun saving, this isn’t going to give you the incentive to do so. In the case that you haven’t already established good saving habits, this may welcome opportunities for more spending and cause further debt.
If you want to consider paying off your bills with a loan, it’s important to begin saving right away. Consider putting a small amount of money into your saving weekly, bi-weekly or monthly. This will make a huge difference and open more future opportunities for you. To learn some saving tips, we have a full blog on it here.
Myth 9: Paying off my credit card bill with a bank loan is easy to do.
As we know, Banks are not in the business of solving your problems. Banks are in the business of making money. If you wish to pay your credit card bill off with a bank loan, you will be offered high–interest rates. They may even ask for a secured loan with collateral, such as your house or your car. It’s important to note that you’ll be paying off more than you need due to interest. Why not consider borrowing money off a family member instead?
Myth 10: You should feel embarrassed about your credit card debt.
We spoke previously about how Canadians are in debt and too embarrassed to seek help. It seems the same applies to credit scores. Credit card debt is something that happens to everyone, and half of Canadians are currently experiencing it right now. You should not be ashamed or embarrassed, keep your head held high. You will turn your finances around and get back on the right track to a great credit score and excellent credit health. We believe in you.
About Marble Financial Inc. (CSE: MRBL; OTCQB: MRBLF). We are a group of forward-thinking financial technology experts that fully understand the benefits and drawbacks of credit in Canada. Marble helps Canadians rebuild their credit to gain access to prime lending. Through our industry-leading proprietary technology solutions: Fast- Track, Score-Up, and Credit-Meds. Since 2016, Marble is proud to have empowered thousands of Canadians to a positive financial future. We continue to establish ourselves as leaders in financial wellness.