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Credit: Debunking 5 Myths

Written by: Lexus (she/her)

3 min read | Published: May 14, 2024

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Credit can be a stressful subject for anyone. Knowing how to navigate it and build it comes with gaining more experience and learning more about how credit works. Growing up, you may have heard a few different things about credit. Let’s review a few common myths that have been repeated throughout many generations and are still often thought to be true. In addition, we will discuss how you can move forward to build credit positively.

MYTH 1: I should wait until I need credit before I start to build it.

This mindset can be detrimental. It’s important to actively work on building a positive credit history prior to opening a loan or line of credit. Waiting for the moment you need to utilize your credit will leave you stuck between a rock and a hard place. Increasing your credit takes a long time. Therefore, if you decide you want to borrow with some form of credit (i.e., credit card, loan, mortgage), you likely won’t have sufficient credit history to be approved or given the best rate option. Always start as early as possible and make timely payments to continue building a positive credit history.

MYTH 2: Carrying a balance on my credit card will increase my credit score.

This is another common misconception. By carrying a balance over each month, you’ll be responsible for paying interest, which means you will spend more the longer you go without paying off the balance. Carrying a balance over a long period of time can lead to a decrease in your credit score depending on how much of your credit limit is available. The goal when it comes to having a balance on your credit card is to pay it off by or before the due date each month. If possible, avoid spending 30% or more of your credit limit to help maintain your credit score.

One great tip is to attach one of your bills to your credit card and set an automatic payment before the due date. That way, you’re always paying off your credit card’s balance while also showing you are actively using it for regular transactions. This often results in a gradual increase in your credit score without you having to do anything because you have everything automated.

MYTH 3: Closing a credit card will not negatively affect my credit score.

Do you have a credit card you may have forgotten about or that you recently paid off? If you no longer plan to use a credit card, it’s often not recommended to completely close your line of credit. The reason behind this is due to length of credit history. Generally, the longer you have a credit card open, the better it is for your report. Utilizing the previous and automating a payment on a credit card instead of closing it could help you maintain or possibly even boost your credit score.

MYTH 4: Credit transactions made on my debit card help build my credit score.

Have you ever had a merchant ask you whether you would prefer debit or credit when checking out at a store? When this question is posed, it has nothing to do with credit. The merchant is asking what way you plan to have your transaction completed. If you choose the debit option, you’re confirming you would like funds to automatically transfer from your checking account. If you choose credit, you’re agreeing to complete a signature-based transaction where it could take two or three business days for the funds to be taken out of your checking account. It’s your choice as to how to complete your transaction, but typically, a signature-based transaction is more secure. Regardless of whether you choose debit or credit to complete a transaction, using your debit card does not impact your credit score.

MYTH 5: Most people who have an 800-plus credit score are rich.

The funds in a bank account have no correlation to the credit score a person possesses. Someone could have $1 million and still have poor credit. This would indicate they have made or continue to make poor choices when managing their credit and any funds they may have borrowed either due to lack of knowledge or detrimental financial habits. It’s important to understand that anyone who is committed and has the right tools can achieve an impressive credit score. It truly comes down to the mindset, life circumstances and personal priorities.

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