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Five Myths that can Harm your Credit Score

Five Myths that can Harm your Credit Score

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    The average U.S. household carries $5,700 in credit card balance, according to 2016 data by the Federal Reserve. Unfortunately, a few myths persist that misinform consumers when it comes to sound financial practices and these misperceptions can have a negative impact on your credit report. It’s important to have a good profile with the three major reporting agencies because a low credit score can increase your borrowing costs, prevent you from accessing loans, and even diminish employment opportunities.

    Here are five myths when it comes to personal credit.

    Myth No. 1: Closing your accounts will improve your score.

    This is a common myth. Nearly one-third (31 percent) of Americans surveyed think that closing unused cards is good for credit according to an Oct. 2016 Capital One Credit Confidence Study. It can actually hurt your score by lowering your overall credit availability. What improves your score is paying down your balance and meeting your current obligations. Moreover, make sure you have a low credit utilization ratio. A high ratio can inform potential creditors that you may be over your head in loans.

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    You aren’t born with a credit score. You have to build it and maintain it. It measures your financial dependability.

    The whole purpose of paying your cards properly is to show potential and/or future lenders that you’re a low-risk borrower who makes payments on time. Doing so can give you access to a low-interest mortgage or car loan. Your credit-based transactions form part of your records with the credit reporting agencies. If you only pay with cash, you won’t have any payment history to show. Cash payments do not leave electronic proof of reliability as a borrower or consumer.

    Myth No. 2: Paying a delinquent loan will remove it from your report.

    A late or missing payment, a delinquent loan, accounts in collection, and bankruptcies aren’t removed from your credit report even if you pay or settle such accounts. In other words, negative marks will remain on your credit profile for seven years. Also, some bankruptcies stay on your report for up to ten years.

    It’s more important to not fall behind in the first place than it is to fix a delinquent account. Adverse information sticks to your report for a long time, so stay current with your bills and avoid items getting reported to the credit bureaus.

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    (The article continues below.)

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      Myth No. 3: Settling your phone bill will increase your score.

      Wireless is either neutral or bad when it comes to personal finances. Paying your cellphone bill on time won’t build up your credit profile, but a delinquent payment will show up as a negative item. More than half (53 percent) of U.S. respondents incorrectly believe that paying their cellphone bill builds their credit score, according to Capital One’s study.

      If you go on vacation, pay your cellphone company ahead of time. You should exercise caution whenever you have a dispute with your provider. An inaccurate statement or a bill that incorrectly charges you for unwanted services could lead to a lengthy resolution process. During the dispute process, it’s possible that your payment could be classified as late.

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      If you have a dispute, consider paying your bill upfront and ask for a refund if the amount owed ends up being less. Alternatively, work out a plan with your wireless provider so you can avoid having a delinquent payment show up on your credit report.

      Myth No. 4: A “hard” inquiry won’t affect your score.

      Yes it can. An inquiry involving card applications, credit checks, and employment background inquiries can cause a temporary dip in your score. However, “soft” inquiries such as monitoring your credit score won’t have an adverse impact. About 27 percent of Americans incorrectly think that checking their credit report will reduce their score, according to the same Credit Confidence Study.

      There are monitoring tools and mobile apps, such as CreditWise, that allow you to check your score. There are websites that let you check your score for free once a year with Equifax, Experian, and Transunion.

      Myth No. 5: A debit card can increase your score.

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      No it won’t. A debit or check card such as those you use at groceries and gas stations are issued by your bank or credit union but they do not impact your credit report. They simply give you access to cash that you already keep in your checking or savings account. These plastic cards do not represent a credit card balance or consumer loan.

      A good credit report isn’t affected by how much money you have deposited into your bank. A credit score doesn’t measure how much paper currency you have stored. “Only by signing up for a credit card and proving that you can use it responsibly will you improve your credit score simply by paying for things,” writes Lauren Gensler at Forbes. However, if you bounce checks or have a negative balance at your bank it can be reported to credit bureaus.

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        Marvin Dumont

        Entrepreneur, Disruptor

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        Last Updated on January 21, 2020

        How to Develop a Millionaire Mindset in 6 Simple Steps

        How to Develop a Millionaire Mindset in 6 Simple Steps

        We all like to dream about being financially wealthy. For most people though, it remains a dream and nothing more. Why is that?

        It’s because most people don’t set their mind to achieving that goal. They might not be happy in their current situation but they’re comfortable – and comfort is one of the biggest enemies of growth.

        How do you go about developing that millionaire mindset? By following these simple steps:

        1. Focus On What You Want – And Take It!

        So many people are too timid to admit they want something and go for it. When there is something that you want to accomplish don’t think “I could never actually do that”, think “I could do that and I WILL do that”.

        Millionaires play to win, not to avoid defeat.

        This doesn’t mean to have to become a selfish jerk. What it means is becoming more assertive and honest with yourself. You don’t have to grab off other people. There is a big pot of unclaimed gold in the middle of the table — why shouldn’t you be the one to claim it? You deserve it!

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        2. Become Goal-Orientated

        It’s almost impossible to achieve anything if you don’t set firm goals. Only lottery winners become millionaires overnight. By setting yourself attainable goals, you will get there eventually. Don’t try to get rich quickly — get rich slowly.

        Let’s take the idea of making your first million dollars and expand on what kind of goals you might set to get there. Let’s also say you’re starting at a break-even position – you’re making enough to get by with a few luxuries, but nothing more.

        Your goal for the first year can be having $10,000 in the bank within a year. It won’t be easy but it is doable. Next, you need to figure out the steps you need to take to achieve that goal.

        Always look at ways to make growth before cutbacks. With that in mind, you might want to see if you can negotiate a pay rise with your boss, or if there’s another job out there that will pay better. You might be comfortable in your old job but remember, comfort stunts growth.

        You may also have other skills outside of your workplace that you can monetize to boost your bank balance. Maybe you can design websites for people, at a fee of course, or make alterations to clothes.

        If this is still not enough to make the money you need to save $10,000 in a year, then it’s time to look at cutbacks. Do you have a bunch of old junk that someone else might love? Sell it! Do you really need to spend $10 on your lunch everyday when you could make your own for a fraction of the cost?

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        If you are to become a millionaire, you need to start accumulating money.

        Here’re some tips to help you: How to Become Goal Oriented and Achieve More in Life

        3. Don’t Spend Your Money – Invest It

        The reason you need to accumulate money is for step three. Millionaires tend to be frugal people, and that’s because they know the true value of money is in investing. Being your own boss goes hand-in-hand with becoming a millionaire. You’ll want to quit your regular job at some point.

        Stop working for your money and make your money work for you.

        Rather than buying yourself a new iPad, that $500 could be used to invest in the stock market. Find the right shares (more on that later), and that money could easily double within a year.

        There’s not just the stock market — there’s also property, and your own education.

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        4. Never Stop Learning

        The best thing you can invest in is yourself.

        Once most people leave the education system, they think their learning days are over. Well theirs might be, but yours shouldn’t be. Successful people continually learn and adapt.

        Billionaire Warren Buffet estimates that he read at least 100 books on investing before he turned twenty. Most people never read another book after they’ve left school. Who would you rather be?

        Learn everything you can about how economics works, how the stocks markets work, how they trend.

        Learn new skills. If you have an interest in it, learn everything you can about it. You’d be surprised at how often, seemingly useless skills, can become extremely useful in the right situation.

        Start developing the habit of learning continuously: How to Create a Habit of Continuous Learning for a Better You

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        5. Think Big

        While I advise to start off with small goals, you absolutely should have a big goal in mind. If you have a business idea, then that is your ultimate goal – to start that business and make a success of it. If you want to invest your way to millions of dollars and do little work other than research, then that is your big goal.

        There is no shame in not achieving a big goal. If you run a business and aim to make $1 million profit in a year and “only” make $200,000, then you’re still significantly ahead of most people.

        Aim for the stars, if you fail you’ll still be over the moon.

        6. Enjoy the Attention

        To be successful, you have to be willing to promote yourself and enjoy the attention to a certain extent. Now the attention doesn’t need to be on yourself, it could be on your brand, but attention definitely attracts money.

        Never be embarrassed to get your name out there. That means finding a spotlight and being brave enough to step right up underneath it.

        If you run a business, try contacting the local papers. You’d be surprised at how amenable they often are to running a story about you and your business, and it’s all free publicity.

        Above all, remember: You control your own destiny. Push hard enough for anything and you’ll get it.

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        Featured photo credit: Austin Distel via unsplash.com

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