Two Common Credit Myths Exposed
Unfortunately, there is a lot of misinformation out there when it comes to credit and how to build your credit score. Today we’re going to take a look at two common misconceptions surrounding credit cards and explain how they could be hurting your credit.
Myth #1: If I’ve Never Used Credit, I Have Good Credit
One of the biggest mistakes people make when it comes to credit is thinking that never using credit means having good credit. In reality, this “responsible until proven irresponsible” mentality couldn’t be further from the truth.
When credit bureaus look at your credit history, they need to see more than just a blank page. Without any history to judge you by, you’re as much of a potential liability as someone who has terrible credit.
Let’s look at an example that illustrates the point. Imagine that you are a store owner and someone walks into your store and asks to take some of your products and then pay for them later. If this person had a proven track record of NOT paying for those things later, you would probably say no. If they had a history of paying on time, chances are you’d say yes.
Now think about what would happen if a total stranger walked into your store. With no information to base your judgment on, you may still say yes, but you’ll be far more inclined to avoid the risk and not do business with that person. Credit works the same way.
Myth #2: Lower Credit Limits Are Better
Another mistake people make when it comes to credit cards is keeping their credit limits too low. The problem with this is that part of your credit score is based on your , and lower limits make it easier to go over the 30% rate that should be your goal. To compound this problem, many credit card companies report your limits as lower than they actually are.
There’s no such thing as “too much” available credit. The problem comes when you see that available credit as a free pass to spend more money. As your credit limits rise, take steps to ensure that your spending doesn’t rise unnecessarily with them.
One great way to keep your spending under control is to set up automatic payments. First, set up a monthly bill you be paid automatically with a credit card. Then, set up the credit card bill to be paid automatically out of your bank account. This way, the card stays active but you never have to worry about racking up too much debt.
If you’ve been under the impression that these myths were true, it’s time to change your way of thinking and begin taking steps to get your credit on track and on its way up!