Credit is something that most of us do not like to talk about. However, it is something that we need in order to survive. Your car payment, mortgage and healthcare financing depend on your credit score. Many people have a low credit score due to misinformation that they have. It is important to debunk myths about credit scores.
Myth: You can Improve Your Credit Score by Closing Your Credit Accounts
Fact: Your debt-to-credit ratio is one of the factors that will determine your credit score. The less available credit you have, the lower your credit score will be. For example, you have $40,000 in credit. Your used credit is $10,000. Your credit utilization ratio is 25 percent.
However, if you close two credit accounts, and your credit is reduced to $20,000, then your credit utilization ratio will be 50 percent. That is why you should keep your credit accounts open. You should also increase your credit limit.
Myth: Your Income Affects Your Credit Score
Fact: Your income is not used to determine your credit score. It does not matter whether you are a minimum wage worker or a multi-millionaire CEO. In fact, many people who have high incomes have a low credit score due to bankruptcy and poor money management. However, people who have a low income are more likely to have a low credit score because they may miss bill payments. They may also use their credit cards to pay their bills.
Myth: Your Credit Score Only Changes a few Times Per Year
Fact: Your credit score is constantly changing. In fact, it may change several times in one month. That is why it is important to monitor your credit score regularly.
Myth: You Cannot get a Loan With a low Credit Score
Fact: Most people can get some type of financing regardless of whether their credit score is the 400s or 800s. However, if you have a low credit score, then you will have a harder time getting approved. You will also have to pay higher interest rates.
Myth: Checking Your Credit Score Lowers It
Fact: If you check your own credit score, then this is considered a soft inquiry. Soft inquiries do not damage your credit score. A hard inquiry is any credit check that is done by a financial institution.
Myth: You Have a Great Credit Report if you do not Have any Credit Accounts
Fact: A lack of credit is not necessarily a good thing. In fact, not having any credit is just as bad as having a low credit score.
Myth: You can Improve Your Credit Score by Carrying a Balance
Fact: You do not need to carry a balance if you do not have to. It is best for you to pay your balance off every month. This will help you save a lot of money in interest.
Myth: You are Stuck With a Bad Credit Score
Fact: A bad credit score is not the end of the world. There are several things that you can do in order to rebuild it. Keeping your balances low, paying bills on time and not applying for too many credit accounts at one time will help improve your credit score. Many take out loans to pay off their debt. Consider contacting BMG Money to discuss whether this is an option for you. A BMG loan may help if you have various creditors, and would like to make one payment, one day of the month.
Visit our website to learn more about BMG Money, our credit education area has valuable information for anybody feeling as though they’re ready to take the next step in taking control of their finances.