Beware lies about credit scores.
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Many people don’t understand how credit scores work, what impacts their credit report, and how to get and maintain a good credit score. If you don’t understand the ins and outs of credit reports and scores, you may fall hook line and sinker for the lies and myths perpetuated about credit. Today we take a look at seven common fibs about your FICO score—and the real truth of the matter!
#1 You Don’t Need Credit
Many people who struggle with credit card temptation and have experienced financial trouble in the past are gun-shy about using credit. They often opt to use prepaid cards and debit cards rather than apply for credit cards. But having a decent credit score affects other things in your life, including the rates you pay for auto and homeowner’s insurance, your ability to get a job you want, and the ability to rent cars or a home.
#2 Your Credit Score Doesn’t Define You
It’s true that your credit score doesn’t define you as a person, and most people with bad credit are good people. However, to those who consider offering you a loan, a job, or a home to rent, your credit score is important information and will influence their decision to approve you (or not). Your FICO score isn’t who you are, but it is important for many reasons beyond accumulating debt.
#3 You Need Debt to Build Credit
Some people think they need to be in debt to get and keep a good credit score. This is not true. If you prefer renting to buying, that’s fine—so is not owning a car. You can have a good credit score without taking out loans. Carefully used credit cards can boost your credit score and keep it high, and you don’t need to carry balances to do it —just use modestly and pay off in full each month.
#4 You Only Need One Credit Card
If you’ve struggled with debt in the past, you may be scared about credit. At the same time, you know sometimes you need a credit card for situations such as renting a car, but maybe you think you can make do with just one card. The harsh truth is that it’s hard to build and boost your credit score with just one credit card in your wallet. You’ll be able to do it better and faster with multiple cards used strategically.
#5 You Can Only have a Good Credit Score With High Income
The truth is that income has nothing to do with your credit score. Your income only matters if it’s a barrier to paying your bills on time. As long as you’re living within your means—whatever your means are—and using credit responsibly, you can have a high credit score. It’s a matter of wanting and working towards a good credit score. Plus, plenty of high earners have a dismal credit score.
#6 You Only Need to Worry About Your Credit When You Want to Borrow
Some people don’t check their credit score until they want to use it, like when they’re ready to buy a car or a home. But unless you’ve been monitoring and grooming your score, it likely won’t be what you want when you’re ready to use it. Great credit scores don’t just happen all by themselves—you have to work at it. Waiting until you need it means it could be too late.
#7 You Can Get Rid of Negative Items on Your Credit by Paying Them Off
If you’re running late on bills and have items in collections, you may think negotiating a settlement and paying them off will make everything better. In fact, it could hurt your score. Really old items that are about to age off your report should be left alone. If you’ve got a pile of debts you can’t pay and negative items piling up, filing bankruptcy may be a better way to go to get a reset on your credit.
Don't make mistakes with your credit score because you buy into the lies and myths about credit scores. Educate yourself, and you can get control of your credit—and we can help! To find out more about rebuilding your credit after bankruptcy or another major setback, contact Credit Score Keys today.