Advertising
Advertising

Five Myths that can Harm your Credit Score

Five Myths that can Harm your Credit Score

Credit Card 2

    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.

    Advertising

    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.

    Advertising

    (The article continues below.)

    Wallet Cash

      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.

      Advertising

      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.

      Advertising

      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.

      Credit Card 1

        Featured photo credit: Picjumbo via picjumbo.com

        More by this author

        Marvin Dumont

        Entrepreneur, Disruptor

        Tips for Shoring up your Finances in 2017 5 Ways Technology Can Make Your Travel Stress-Free 5 Last-Minute Holiday Shopping Tips to Beat the Holiday Rush Five Myths that can Harm your Credit Score 5 Ways to Outsmart Hotels and Save Money

        Trending in Money

        1Top 10 Recommendations on Money Management Apps 2How Much Should I Spend on Rent? Find Your Answer Here 3How Much Money Do I Need to Retire? Find Your Answer Here 4The Ultimate Guide to Make Saving Money Fast and Easy 56 Easy Ways to Treat Yourself

        Read Next

        Advertising
        Advertising

        Published on July 4, 2018

        Top 10 Recommendations on Money Management Apps

        Top 10 Recommendations on Money Management Apps

        Don’t want to overspend your budget, swipe your credit card too many times, and feel like a financial mess? Instead of beating yourself up for the bad financial decisions you’ve ever made, create a new plan!

        The solution is simple, save more and spend less. But, we all know it’s easier said than done.

        One problem is finding quality apps that save you time and money, and aren’t just hype.

        Luckily, there’re many great money management apps available at your fingertips. Here are 10 reliable money management apps that can help you save money, and crush debt.

        1. Personal Capital

          When was the last time you’ve tracked your net worth? Probably months ago or maybe never. Personal Capital allows you to easily track your net worth and plan for retirement.

          Here are some of its main features:

          • Sync many investment accounts, and expenses (mortgage, credit cards, etc.) in one place
          • Discover hidden fees and how much they’re affecting your retirement plan
          • Wealth management for investors requiring a long-term strategy

          With Personal you’re free to track your expenses and net worth.

          Available for: iOS and Android

          2. Mint

            If your smartphone could only install a few apps, Mint would be one of them. Why? Because Mint tracks all your balances and bills in one place.

            Here are some of its main features:

            Advertising

            • Effortlessly track all your bills and balances in one dashboard
            • Categorized expenses to understand where you spend your money
            • Uncover hidden fees, and determine your investment style with sophisticated retirement tools.

            Feel at ease with managing your money by a reputable company that isn’t going anywhere.

            Available for: iOS and Android

            3. YNAB

              Everyone needs a budget, there’s no way around it. YNAB (You Need A Budget) is an easy to use app that will change the way you think about money. Their motto is to “give every dollar a job”, and you’ll quickly discover why.

              Here are some of its main features:

              • Easily sync all bank accounts in one place
              • Visually see your debt paying progress with eye-catching charts and notifications
              • Customized categories setting saving goals

              The best part about YNAB is the community that comes along with it. You can hop on the YNAB forum to receive support, listen to the YNAB Podcast or stay tuned for their weekly videos.

              Available for: iOS and Android

              4. Wealthfront

                Albert Einstein once said “compound interest is the eight wonder in the world”, and for a very good reason. The problem is, most people are scared or unwilling to learn the basics of investing. This is why Wealthfront is the perfect solution for the hands-off investors.

                Here are some of its main features:

                • Variety of investment account options including IRA, Roth IRA, and more
                • Your portfolio composed of 7 different asset classes
                • Automatically rebalanced portfolio
                • Daily tax loss harvesting

                Wealthfront is perfect for people requiring investment guidance, or prefer a hands-off solution.

                Available for: iOS and Android

                Advertising

                5. Clarity Money

                  If you’re staying on top of your budget but want to take your finances to the next level, Clarity Money can help you. Clarity Money helps you stay under budget and build a personalized savings plan.

                  Here are some of its main features:

                  • Easily cancel subscriptions with one click
                  • Synchronize bank accounts fast
                  • Transfer money effortlessly between different accounts

                  Clarity Money isn’t an app that does it all. But, it does make transferring money and canceling subscriptions fast and efficient.

                  Available for: iOS and Android

                  6. Acorns

                    What if there was a way to quickly gain confidence in investing your money, without too much risk? There is, and Acorns is your solution. With Acorns’s technology, you’re able to make investments as small as $5.

                    Here are some of its main features:

                    • Automatic contribution option
                    • Customized portfolio tailored to your needs
                    • Low management fees ranging from $1-$2 per month

                    Stop wasting dollars on expensive coffee. Instead, invest them towards a brighter financial future.

                    Available for: iOS and Android

                    7. Albert

                      Do you budget by only subtracting your expenses from your income? If so, how would you discover any overpayments or extra money you could save? This is where Albert shines, and it does it all free.

                      Advertising

                      Here are some of its main features:

                      • Receive notifications for overpayments, hidden fees, and low balances
                      • An Automatic budget that’s built around your spending and income
                      • Easily track debt and set new financial goals

                      While Albert does offer a paid option, most of its core features are FREE. So, what better option to save?

                      Available for: iOS

                      8. Prism

                        Have you recently forgot to pay a bill because life got in the way? Prism automatically tracks your bills and syncs your bank accounts in one place.

                        Here are some of its main features:

                        • View all your account balances in one glance
                        • Bill due dates are automatically pulled and tracked
                        • Receive early reminders for upcoming bills

                        If your budget is on “fleek” but can’t seem to stay on top of your bills, Prism is your go-to app.

                        Available for: iOS, Android, Windows, Amazon

                        9. Mvelopes

                          Remember hearing about people using envelopes to budget their money? Well, Mvelopes is the new envelope system for this generation. Easily create monthly budgets and track your saving goals.

                          Here are some of its main features:

                          • Connect unlimited bank accounts
                          • Real-time budgeting with auto transaction syncing
                          • Low monthly $4 fee or $40 annual

                          Mvelopes can help you crush debt, save more, and help you stop overspending. With its low monthly fee, it’s worth a try.

                          Advertising

                          Available for: iOS and Android

                          10. Wallaby

                            Most people don’t have time to track their credit card’s changing rewards and interest rates. Because of this, you need help reaping the most of your credit card’s rewards. Wallaby is the app that will help you do just that.

                            Here are some of its main features:

                            • Automatic recommendations for the best credit card to use for each transaction
                            • A friendly user interface, displaying credit cards with their corresponding images
                            • Free to use

                            If you’re using the same credit card to make your purchases, you may be leaving money on the table. Give Wallaby a try if you’re ready to maximize your credit card’s rewards.

                            Available for: iOS and Android

                            Take control of your finances and experience financial freedom

                            Picture yourself staying on budget and saving more money than you’d ever imagined.

                            It took hard work and dedication but you’d finally learned how to manage your money. You have to start taking control of your spending and saving habits.

                            You now have a list of reliable apps that can help you build better money habits, what are you waiting for?

                            Featured photo credit: Pexels via pexels.com

                            Read Next