Many people in the U.S. have a number of misconceptions about how credit really works. They distrust things like credit cards because they don’t understand them and so choose to use cash and prepaid or debit cards instead of credit in order to keep them from racking up debt. Some think that having no credit at all is the same as having good credit, and some just have misconceptions about how you get or improve your credit. There are a number of tools out there to get our credit checked, but what you don’t want is to someday need a home loan only to find that your credit isn’t good enough or isn’t able to get you a better interest rate.
Racking Up Debt From Month To Month
One of the worst credit myths is that the way you improve or create credit is by carrying a balance from month to month. This balance of course accrues interest making your payments bigger every month without having you purchase anything as the interest compounds. If you carry a high balance from month to month it can actually hurt your credit score as this is seen as risky behavior. Paying off your entire bill on time each month is the best way to make sure you aren’t losing money to interest or hurting your credit score by accruing huge bills.
This myth may have come about by the fact that using your credit card is good for your credit score. The more they lend you while you pay it off each month, the more you are seen as a less risky person to lend to, hence the improvement in your credit score.
More Credit Cards Doesn’t Mean More Credit
Another big myth is that multiple credit cards can hurt your credit. If you are applying for multiple credit cards all at once and closing them constantly this can be seen as erratic and risky behavior. However, if you have one or two cards that you pay off each month and are interested in getting a third, fourth, and so on then you really shouldn’t worry. Your credit score may take a small temporary hit, but nothing that should really affect you in the long run.
Carrying multiple cards may be too much to remember for some. Payments can come due at different times of the month and you might feel overwhelmed or get too spend-happy, but if you’re responsible enough to keep things straight there is no stopping you from getting credit card after credit card.
Don’t Be Afraid to Check Your Credit
Possibly the most toxic credit myth is the idea that checking your credit score can hurt your credit score. This makes it seem smarter to live in ignorance, until you get hit with a credit denial out of nowhere. In reality though there are two types of credit checks that occur.
Hard inquiries can do some short term damage to your credit, so it’s best to space them out if you can. Hard inquiries are typically from companies you are hoping to get a loan from or credit card from. These are not the types of credit checks you can find online at numerous sites that offer free credit scores or credit monitoring.
Soft inquiries or checks are the type that employers or you would normally do on yourself. These don’t affect your credit score and can be the best way to make sure you aren’t surprised by your credit score somewhere down the line. Keeping track of your credit score and making improvements to your spending habits is a great way to save yourself money and hassle down the line from having a bad credit score.