9 Most Common Credit Myths
Yes Virginia, there really might be a Santa Claus, but that doesn’t mean you should believe these widely spread credit myths. Though there are far more than 9, we chose the ones we’ve heard most often. See if any of these sound familiar…
1. “Requesting my own credit reports will hurt my credit score”
This may be the most widely held credit myth. No matter how many times we repeat it, we still come across consumers who insist that by monitoring or requesting their own credit report, they’re going to damage their own score. Go ahead and try – we dare you! You’ll find that only a “hard inquiry”, when you request a new credit card or loan, causes that temporary drop.
2. My credit scores won’t drop until I ‘activate’ my new card
While you might have to call a toll-free number on the front of your card to use it, just applying for the card – not using or activating it – is what we mentioned above as a “hard inquiry” that causes your score to take a dip (usually 5 points or less). The account status on your credit reports shows as “active” shortly after the card is approved.
3. Merchants can ask for my ID, like a driver's license, when I pay with a credit card
Most merchants are specifically not allowed to ask for identification; your signature should suffice. Merchants who ask for ID are trying to reduce their own fraud costs. But don’t put yourself at risk for fraud, either. Consumers often pay with credit rather than with a check to avoid giving an unscrupulous salesclerk the opportunity to capture information like address, phone or social security numbers.
4. If I’m getting credit card applications in the mail, that means I can afford them
Credit card companies send offers to prospects based on mailing lists or marketing research. It’s up to the consumer to decide if they can afford to accept their offer.
5. “No-limit” credit cards mean you can buy whatever you want
Most credit cards come with credit limits, but some cards advertise not having “pre-set” spending limits. You may not know what your limit is, but the credit card issuer does, and it’ll be based on your income and spending patterns, including credit history and payment record. You would probably find out what it is when you try to pay for something that was unusually expensive for you and the merchant tells you the transaction was not approved.
6. If I pay off my credit card balances on time each month, I’ll have perfect credit
We won’t discourage anybody from paying credit card balances in full each month, especially on time. But that won’t guarantee an excellent score, if you’re using too much of your credit limit. Your credit scores are incredibly sensitive to how much of your available credit you use, especially on your credit cards. If you charged $1900 on a card with a $2000 limit – and paid it off – your score will still reflect that you’re using 90% of your available credit. Remedy this by asking for higher limits, using several different cards to pay bills each month, or make more than one payment each month.
7. High credit card limits are bad for your credit scores
If anyone tells you your credit scores aren't higher because you have "too much available credit," it really means there's nothing wrong with your credit. If you ask a credit card company to lower your credit limits or close accounts, you might damage your scores, unless a lender requires it as a condition of giving you a loan. If that happens, try to keep your oldest and highest limit cards open.
8. A low credit score affects my credit forever
Your credit score is not set in stone. Do what it takes to get healthy credit, and you’ll be offered better rates. Issues or problems you had in the past with credit will matter less as time goes on, as long as you’re maintaining the higher score.
9. I can wrap up all of my credit card debt into a home equity loan and deduct the interest
Do you really want to gamble on your home? You could lose it if you fail to make your payments. Lenders use your home as collateral and can take it from you if you default on the loan. And tax laws change; once credit card interest was deductible, but not anymore. There’s no guarantee you’ll always be able to deduct home equity interest, either. Get the facts about credit myths and misconceptions
After reading these 9 common credit myths, get your credit report & score.