5 Credit Myths People Need to Get Over

Myth #1: Paying the minimum payment for my credit card each month is fine.

200547695-003Yes, it may be fine, but you really aren’t making a dent in your balance. Usually the minimum payment helps offset the interest that has accrued from your financial charges.

If you have a lofty balance, you will end up paying more interest than paying off the actual balance. Furthermore, chances are you are going to make more transactions with your credit card. Paying more than the minimum payment will enable you to have more available credit sooner. Most importantly, paying more than the minimum could improve your credit score.

One of the factors that affect your score is called credit utilization. Credit utilization is the ratio of your credit card balances to credit limits as listed on your credit report. To find out your credit utilization, simply divide your credit card balance by your credit limit then multiply by 100.

Paying the minimum doesn’t stop your balance from quickly approaching your credit limit. The closer your balance is to the limit, the more likely it will bring down your score, as you are utilizing a large amount of credit.

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Myth #2: I was approved for a store credit card at Macy's so a bank should approve me as well.

macysJust because you are approved for a store credit does not mean other creditors will approve you at a bank or another financial institution. All institutions have different credit requirements so a department store approval is not the same as bank approval.

You can always be declined because of the many factors involved in being approved for a credit card or loan. The three main factors are credit score, income, and debt. Creditors want to see that you are able to make monthly payments on time on this new debt that you want from them.

If you have multiple accounts open and most have a high balance, the likelihood of you getting credit from a bank or another credit lender is low.

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Myth #3: I have a high credit score, so I will always be approved for more credit.

You can have a highighcredit21h credit score and still be denied because you have a large amount of debt. Making a lot of money doesn't necessarily mean you can handle another payment every month.

Creditors are taking their best guess that all things will be constant with your income and financial situation so when they lend money to you, you will be able to pay it back with interest.

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Myth #4: The bank wants me to default on my loan/credit cards.

credit2This is a huge misconception, partly due to the misunderstanding of figures in the fine print of your agreement. Most lenders include fees and other important information in small print somewhere in your contract.

It is vital that you read everything and ask questions about anything you don’t understand even if you think it may be trivial. Doing so will enable you to make a more informed decision. Being informed helps you become a better manager of credit.
If you want to know the rules for lenders, check out this PDF from the Federal Reserve.

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Myth #5: I don’t need to know my score before applying. The lender will check it for me.

handdTrue! The lender will check your score; however, this thought process could be damaging your score. Having your credit pulled multiple times and not opening an account or even worst, being denied, can put a severe dent in your credit score.

Having your credit pulled multiple times and being denied means that multiple creditors aren't willing to lend you money, which does negatively effect your credit.

If you already know your score, you can ask lenders what is the minimum score they accept and you can make the decision on whether or not to proceed in opening an account. Your credit won’t be pulled and you won’t be denied if your score is at or below the minimum.

You have the power of your credit. Furthermore, sharing your score with the lender may aid them in finding you a better fitting credit card or loan.

Also, if you currently have bad/fair credit, that’s okay too. Working with a banker can help you obtain better credit in the future.

Learning how to manage your credit is like riding a bike. You may fall off, but once you have a handle on it, it’s smooth riding.

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