Debunking Credit Myths

Let's bust some common credit myths! I'm tired of seeing these misconceptions floating around, messing with people's financial lives. Credit can feel complicated, but it doesn't have to be.

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Here are six credit myths I'm determined to debunk:

Myth 1: Checking Your Credit Score Hurts It

Seriously, where did this come from? It's completely wrong! Checking your own credit score is a "soft inquiry" – think of it like a casual glance. It does not affect your credit rating. I can't stress this enough: you should be checking your credit score regularly. How else will you know what's going on? It's like driving a car without looking at the speedometer – you're asking for trouble! Plus, the Consumer Financial Protection Bureau (CFPB) found that a whopping 25% of us find errors on our credit reports. You need to catch those mistakes! Don't let the fear of a score drop stop you from going after that dream job or apartment just because a potential employer or landlord might check your score. That's a soft inquiry too!

Now, hard inquiries are a different story. These happen when you apply for new credit, like a credit card or loan. They can ding your score, but usually only temporarily. So, don't go applying for ten credit cards at once, but don't be afraid to shop around for the best rates either.

Myth 2: Only Big Purchases Build Credit

This is another myth that needs to be buried. Sure, mortgages and big loans play a role, but your everyday financial habits are just as important, if not more so. Think of it this way: would you trust someone who only made big, splashy purchases, or someone who consistently paid their smaller bills on time? Exactly! Paying your bills on time (even utilities!), keeping your credit utilization low (ideally below 30%), and keeping older accounts open are all gold stars on your credit report. You're building credit every single day, even with small things.

Myth 3: Your Credit Score is All That Matters

Your credit score is definitely important, but it's not the only thing lenders look at. They also consider your income, employment history, and how much debt you already have. Imagine two people: one with a 680 credit score and a stable job, and another with a 760 score but who jumps from job to job. The first person might actually be a less risky borrower, even with the lower score. Lenders want the whole picture, not just a snapshot.

Myth 4: Bad Credit is a Life Sentence

Absolutely not! Bad credit isn't a permanent mark. It takes time and effort, but you can rebuild your credit. It's like fixing a leaky faucet – it might take some work, but it's definitely doable. Start by paying your bills on time, even small ones. Consider a secured credit card. Be patient, and you'll see progress.

Myth 5: Student Loans Will Ruin Your Credit

This one drives me crazy! Student loans are an investment in your future, and they don't have to wreck your credit. It's all about how you manage them. Pay them on time, and they can actually help you build a positive credit history. Don't let the fear of student loans hold you back from getting the education you need.

Myth 6: Closing Credit Accounts Always Helps

Nope! Closing accounts can actually hurt your score. Think of it this way: if you close a credit card, you're reducing your overall credit limit. That can increase your credit utilization ratio (the amount of credit you're using compared to your total available credit), which can lower your score. Plus, closing older accounts can shorten your credit history, which also impacts your score. My oldest credit card has terrible rewards, but I keep it open and put my Spotify subscription on it just to keep it active. It's a small price to pay for a longer credit history! This being said, closing a card with a high annual fee that you don't use might be a good financial move overall, even if there's a slight temporary dip in your score.