Five Fallacies About Developing Credit
Five Fallacies About Developing Credit
Having a good credit history is very important because it does not only affect your ability to borrow money but also another aspect of your life, which is employment. If you are currently studying college or starting your career, it is vital to know myths about credit as soon as possible. The following are five myths about building credit.
The first myth is if you don’t borrow money, you don’t need to build credit. Although you pay cash for college expenses, car, or clothes, credit is still needed for things such as insurance policies or employment. Credit can be a factor for the price that insurance companies will give you or credit history can influence employers to either hire or promote you.
The second myth is it is better to use your credit cards frequently. Having a high credit utilization ratio (CUR), a percentage of a limit that is used, can damage your credit score. According to FICO, it is better to keep your CUR less than 30 percent and a few credit experts even suggest a CUR of 10-15 percent.
The third myth is not using credit indicates that you have good credit. Contrary to belief, having small to zero credit history is almost having bad credit because banks have no basis for your worthiness. Start building your credit as soon as possible, and if you don’t have student loans or other credit accounts, ask a local bank to you assist you in building your credit.
The fourth myth is that demographics affect credit. Demographic data such as education, income, gender, race, or location does not affect your credit but your credit score. However, age might affect your credit to some extent because the age of your accounts also matter.
The fifth myth is that minor misbehaviors do not matter. While it’s undeniable that major delinquencies damage your credit more, minor ones can mess things up as well.
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