2907: 6 Credit Myths That Can Cost You Money by Kumiko of The Budget Mom on Financial Well-Being

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[00:00:54] [SPEAKER_00]: This is Optimal Finance Daily. Six Credit Myths That Can Cost You Money. By Kimiko of TheBudgetMom.com.

[00:01:03] [SPEAKER_00]: And I'm your host and personal finance enthusiast, Diana Merriam. Let's get right to our next article as we optimize your life.

[00:01:15] [SPEAKER_00]: Six Credit Myths That Can Cost You Money. By Kimiko of TheBudgetMom.com.

[00:01:22] [SPEAKER_00]: You don't have to look far to find conflicting information about credit reports, credit scores, credit cards, and similar topics.

[00:01:31] [SPEAKER_00]: Unfortunately, believing the wrong credit myths could cost you in several ways.

[00:01:36] [SPEAKER_00]: Following are six common credit-related myths that could cause you problems.

[00:01:42] [SPEAKER_00]: Learn the truth about these topics in advance so you'll be better prepared to protect your credit and finances in the future.

[00:01:50] [SPEAKER_00]: Myth number one. It hurts your credit score when you check your own credit report.

[00:01:56] [SPEAKER_00]: Checking your three credit reports from Experian, TransUnion, and Equifax is essential to maintaining a good credit rating.

[00:02:05] [SPEAKER_00]: That's why the idea that it will hurt your credit score to check your own reports is such a dangerous myth to believe.

[00:02:11] [SPEAKER_00]: Credit scoring models like FICO and Vantage Score do consider the number of times others, like lenders or creditors, pull your credit reports.

[00:02:21] [SPEAKER_00]: Many credit checks by others are known as hard credit inquiries, and they could potentially hurt your scores.

[00:02:29] [SPEAKER_00]: But when you check your own credit, a soft credit inquiry occurs.

[00:02:34] [SPEAKER_00]: Soft credit inquiries won't affect your credit scores in any way.

[00:02:39] [SPEAKER_00]: There are numerous places you can access your credit reports for free, including annualcreditreport.com.

[00:02:47] [SPEAKER_00]: However, getting free copies of your credit scores isn't always as easy.

[00:02:52] [SPEAKER_00]: Myth number two. Paying your bills on time is all it takes to earn a good credit score.

[00:02:58] [SPEAKER_00]: Getting a high credit score may not be as simple as you think.

[00:03:02] [SPEAKER_00]: Paying your bills on time is undoubtedly an important step.

[00:03:06] [SPEAKER_00]: But 65% of your FICO score has nothing to do with your payment history.

[00:03:11] [SPEAKER_00]: If you want to improve your credit score, you need to take other necessary steps.

[00:03:16] [SPEAKER_00]: For example, it's essential to pay off your credit card balances each month, not just to save money on interest,

[00:03:24] [SPEAKER_00]: but also to keep your balance-to-limit ratio, also known as your credit utilization ratio, low.

[00:03:30] [SPEAKER_00]: Credit utilization is a crucial component in your credit scores.

[00:03:35] [SPEAKER_00]: It's also wise to avoid applying for and opening new credit accounts too often.

[00:03:42] [SPEAKER_00]: It would help if you also had a good mixture of account types on your credit reports.

[00:03:48] [SPEAKER_00]: Myth number three.

[00:03:49] [SPEAKER_00]: You have to pay someone to fix your credit for you.

[00:03:53] [SPEAKER_00]: Bouncing back from past credit mistakes and low credit scores can be difficult.

[00:03:58] [SPEAKER_00]: But if you're dedicated to turning your credit around, it is possible to boost your credit scores over time.

[00:04:05] [SPEAKER_00]: There are even some steps you can take to help improve your credit quickly.

[00:04:09] [SPEAKER_00]: As you work to fix your credit, you may come across credit repair companies that advertise that they can clean up your credit for you.

[00:04:18] [SPEAKER_00]: Well, there's nothing wrong with hiring a reputable credit repair company to work for you.

[00:04:23] [SPEAKER_00]: It's also your right to try to fix your credit yourself.

[00:04:27] [SPEAKER_00]: A credit repair company can't do anything that you can't take the time to learn to do yourself.

[00:04:34] [SPEAKER_00]: If you do decide to hire a professional to work on your behalf, research the company in advance.

[00:04:41] [SPEAKER_00]: Be sure you get information about the fees you'll be charged and the company's cancellation policy.

[00:04:47] [SPEAKER_00]: Myth number four.

[00:04:49] [SPEAKER_00]: Credit cards are dangerous.

[00:04:51] [SPEAKER_00]: Some people believe that credit cards are a one-way ticket to financial disaster.

[00:04:56] [SPEAKER_00]: Don't get me wrong.

[00:04:57] [SPEAKER_00]: There are times and situations where I think using credit cards could be dangerous.

[00:05:02] [SPEAKER_00]: I also understand how easy it can be to use your credit cards the wrong way.

[00:05:07] [SPEAKER_00]: Personally, I racked up $26,000 in credit card debt and had to work incredibly hard to pay it off and change my habits.

[00:05:15] [SPEAKER_00]: But I did pay off my credit card debt and learned how to manage my accounts responsibly.

[00:05:21] [SPEAKER_00]: Now, I never charge more on my credit card than I can afford to pay off when the bill is due.

[00:05:27] [SPEAKER_00]: If you track your spending and manage credit cards the right way, there's nothing inherently wrong or dangerous about those little pieces of plastic.

[00:05:36] [SPEAKER_00]: On the contrary, the right types of credit cards can potentially be a great tool to help you build positive credit.

[00:05:44] [SPEAKER_00]: If you can use a credit card wisely, pay it off in full every month, never carry a high balance, and never miss a payment, then a credit card isn't dangerous.

[00:05:54] [SPEAKER_00]: You must be honest with yourself if you can use a credit card responsibly.

[00:05:59] [SPEAKER_00]: Myth number five.

[00:06:01] [SPEAKER_00]: You can't qualify for new credit cards unless you already have good credit.

[00:06:06] [SPEAKER_00]: Building good credit can present a chicken-and-the-egg style problem.

[00:06:11] [SPEAKER_00]: You need good credit to qualify for new accounts, but you need well-managed accounts to build good credit.

[00:06:17] [SPEAKER_00]: How do you find a lender that will take a chance on you when you're new to the world of credit, or you messed up your credit in the past?

[00:06:25] [SPEAKER_00]: You might indeed have trouble qualifying for a big loan or a premium credit card if you have no credit or damaged credit history.

[00:06:33] [SPEAKER_00]: But some lenders may be willing to give you a chance.

[00:06:37] [SPEAKER_00]: For example, secure credit cards are worth considering if you want to build or rebuild your credit.

[00:06:44] [SPEAKER_00]: Because you put down a deposit that's equal to your credit limit when you open the account, the lender takes on less risk.

[00:06:51] [SPEAKER_00]: So you'll be much more likely to qualify, even with credit problems.

[00:06:56] [SPEAKER_00]: Tip.

[00:06:57] [SPEAKER_00]: It's good to compare multiple offers before you apply for a secured credit card or any other type of financing.

[00:07:05] [SPEAKER_00]: And myth number six.

[00:07:07] [SPEAKER_00]: Keeping a balance on your credit card will help raise your credit score.

[00:07:11] [SPEAKER_00]: Carrying a balance on your credit card is not a good way to build a strong credit history.

[00:07:16] [SPEAKER_00]: And there are no benefits to this myth.

[00:07:19] [SPEAKER_00]: In reality, carrying a balance can hurt your credit score and budget.

[00:07:24] [SPEAKER_00]: Some believe this myth because they think that having a balance demonstrates responsible credit use.

[00:07:30] [SPEAKER_00]: However, proving you're responsible with credit doesn't mean you have to carry a balance.

[00:07:35] [SPEAKER_00]: Carrying a balance on your credit card means owing money to someone else and paying interest along the way.

[00:07:41] [SPEAKER_00]: It can also hurt your credit score.

[00:07:43] [SPEAKER_00]: The second most crucial factor that makes up your FICO score is credit utilization.

[00:07:49] [SPEAKER_00]: The amount you owe in relation to your credit limits.

[00:07:53] [SPEAKER_00]: If you're continuing to carry higher balances, your credit score could take a hit.

[00:07:58] [SPEAKER_00]: The best actions to take when dealing with credit card balances are to pay your credit card bills on time,

[00:08:05] [SPEAKER_00]: keep your balances low, check your credit report for errors or discrepancies,

[00:08:10] [SPEAKER_00]: and avoid opening credit cards that you don't need.

[00:08:14] [SPEAKER_00]: Why it's important to separate credit myths from credit facts.

[00:08:18] [SPEAKER_00]: Good credit can be a powerful asset you can use throughout your life.

[00:08:23] [SPEAKER_00]: It can help you qualify for financing when you need it,

[00:08:26] [SPEAKER_00]: secure lower interest rates,

[00:08:28] [SPEAKER_00]: save money on insurance premiums,

[00:08:30] [SPEAKER_00]: and even land a job.

[00:08:32] [SPEAKER_00]: You'll be better able to earn and keep the solid credit rating you want and need

[00:08:37] [SPEAKER_00]: when you learn how to separate fact from fiction.

[00:08:45] [SPEAKER_00]: You just listened to the post titled,

[00:08:47] [SPEAKER_00]: Six Credit Myths That Can Cost You Money,

[00:08:49] [SPEAKER_00]: by Kimiko of TheBudgetMom.com,

[00:08:52] [SPEAKER_00]: and I'll be right back with my commentary.

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[00:10:27] [SPEAKER_00]: It's important for you to check your credit report regularly.

[00:10:31] [SPEAKER_00]: So I'm glad Kimiko squashed the myth that it will hurt your score.

[00:10:35] [SPEAKER_00]: Credit reports contain personal information that can significantly impact a person's ability

[00:10:41] [SPEAKER_00]: to secure loans or employment.

[00:10:44] [SPEAKER_00]: Errors on credit reports can occur and consumers need to know their rights

[00:10:49] [SPEAKER_00]: under the Fair Credit Reporting Act.

[00:10:51] [SPEAKER_00]: It's crucial to regularly check for inaccuracies and understand how to dispute them effectively.

[00:10:58] [SPEAKER_00]: Along the same vein, regularly checking your reports can help to alert you to any identity theft.

[00:11:05] [SPEAKER_00]: According to the Federal Trade Commission, millions of Americans fall victim to identity theft each year.

[00:11:11] [SPEAKER_00]: When your personal information is compromised, through data breaches, phishing scams, or lost documents,

[00:11:19] [SPEAKER_00]: a thief can open credit accounts in your name.

[00:11:22] [SPEAKER_00]: While monitoring for it is great, you can also freeze your credit to prevent this from happening.

[00:11:28] [SPEAKER_00]: By freezing your credit, you make it nearly impossible for fraudsters to secure new credit,

[00:11:33] [SPEAKER_00]: as creditors cannot access your credit report without your permission.

[00:11:37] [SPEAKER_00]: Keep in mind that a credit freeze does not impact your credit score.

[00:11:42] [SPEAKER_00]: Unlike other actions, such as closing accounts or accumulating debt,

[00:11:47] [SPEAKER_00]: freezing your credit does not alter your credit standing.

[00:11:50] [SPEAKER_00]: This means you can maintain your credit worthiness while actively protecting yourself from potential fraud.

[00:11:57] [SPEAKER_00]: And that's another edition of Optimal Finance Daily.

[00:12:00] [SPEAKER_00]: Thank you for listening, and I'll be back with you tomorrow for another post.

[00:12:04] [SPEAKER_00]: So I'll see you there, where your optimal life awaits.