Building and maintaining great credit is an important part of your financial life. But there are loads of myths and misunderstandings about credit that can hurt your wallet. Laura covers 12 credit myths and truths you should know to save money and improve your finances.
Building and maintaining great credit is an important part of your financial life. Excellent credit scores unlock a world of benefits including borrowing at low interest rates and paying less for insurance.
But there are loads of myths and misunderstandings about credit that can hurt your wallet. In this post, I’ll help you build the best credit possible with 12 credit myths and truths you should know.
12 Credit Myths and Truths You Should Know
- Your personal information affects your credit.
- Your income affects your credit scores.
- Using a debit card helps build credit.
- Canceling credit cards boosts your credit.
- You share credit with a spouse.
- Kids can’t have a credit report.
- You must carry credit card debt to build credit.
- You only need good credit if you plan to carry debt.
- Every bill you pay helps build credit.
- Checking your credit hurts your score.
- You have one credit score.
- Closing a credit account erases its history.
Here’s more detail about each to help you build excellent credit.
Myth #1: Your personal information affects your credit.
Truth: If you’ve heard that credit scoring is discriminatory or uses information from your social media accounts, that’s dead wrong. Your credit scores are calculated using data in your credit reports with nationwide credit agencies, including Equifax, Experian, and TransUnion.
There is personal information in your credit reports, but it’s limited to your name, current and previous addresses, Social Security number, birthdate, and public information, such as a recorded lien or bankruptcy.
Your credit files never include your race, gender, marital status, education level, religion, political party, or income.
Your credit files never include your race, gender, marital status, education level, religion, political party, or income. Federal law prohibits credit scoring from taking those factors into account.
Myth #2: Your income affects your credit scores.
Truth: There’s no connection between how much you earn and your credit scores. Since lenders and credit card companies typically ask your income on a credit application, having a high income can work in your favor, but it’s just one way they evaluate you.
As I previously mentioned, your credit reports don’t include income and credit bureaus don’t have access to your income sources. You can have excellent credit scores no matter if you’re employed, unemployed, receiving government assistance, or how much or little money you make.
Of course, losing your job or business income could severely affect your ability to pay your bills on time, which is a major factor in your credit scores.
Myth #3: Using a debit card helps build credit.
Truth: Debit and credit cards look alike—but that’s where the similarity ends. While using a debit card is convenient for making everyday purchases, they don’t help you build credit because your bank activity isn’t listed on your credit report.