Credit - scores and history - is something that a lot of people worry about and it makes sense. Most people need to leverage credit in order to do things like get a mortgage or secure a loan. Many employers use credit as a reference point before offering employment and even when it comes to renting a home, your credit matters. But how confident are you when it comes to what you know about credit? And is what you know truth or myth?
Capital One recently released the results of its inaugural "Capital One Credit Confidence Study" with a goal of understanding people’s thoughts, attitudes, behaviors and expectations as it relates to them managing their credit wisely.
Over 2,300 people were surveyed and they included people who are new to establishing credit, building their score or re-building their credit. While the study was very in-depth, I've pulled out a few stats that I think you will find interesting in terms of how it relates to credit myths.
But before we get into that, did you know that almost 24% of the study respondents consider credit a taboo topic right up there with their love life, politics and religion? I certainly don't think credit is a taboo topic, in fact, I strongly believe the more informed people are about credit, the better - imagine how many poor financial decisions can be avoided. Knowledge is power. Now on to the stats.
Myths Impacting Credit Confidence
Yup, there are quite a number of myths out there that certainly have an impact on credit confidence and proper decision making around the use of credit. It's time to dispel them.
MYTH: 53% Believe paying their cell phone bill builds their credit score
The Capital One study revealed that over half of the 2300+ people surveyed thinks paying their cell phone bill helps build their credit. Unfortunately it does not. However, if you pay your bill late and become delinquent it will have a negative impact on your credit score. So if your focusing is building your credit focus on using a credit card responsibly and paying your balance in full each month. Also be sure to stay current with your payments on other loans or outstanding debts you might have.
MYTH: 52% believe that holding a credit card balance is good for their credit
Wrong! Carrying a balance isn't a great idea. Not only only will you owe money you will also be paying interest which means the price of whatever you paid for on credit will cost you more money every month that you carry a balance. Everyone should strive to pay their credit card bill in full and on-time every month to build and protect their credit score.
MYTH: 31% Think that closing unused credit cards is good for their credit
On the contrary, as a matter of fact the average age of your accounts is a significant part of your credit score and keeping your oldest cards open will typically help your score so don't be in a hurry to close them all down. At a minimum you can plan to make small transactions every few months that you pay off in full at the end of the billing cycle to keep your unused credit card active. However, if you struggle with overspending and lack the discipline to stay out of credit card debt then closing them might be better for you keeping in mind that it may impact your credit score.
MYTH: 29% Mistakenly believe they only have one credit score
You have more than one credit score! And the different credit bureaus all have different methods of calculating credit scores. Scoring models include FICO ( most often talked about), Vantage, and Beacon.
MYTH: 27% believe checking your credit report will not reduce your credit score
If you are applying for loans or lines of credit, you are most likely getting hard inquiries against your credit report. A ‘hard’ inquiry for credit card applications or credit checks can cause a temporary dip in your score, but ‘soft’ inquiries such as checking your credit score through credit monitoring tools will not impact your score.
MYTH: 15% incorrectly believe that once a credit score is bad, it can’t be rebuilt
Your credit can be rebuilt, over time if you focus on developing good credit habits and working through the issues on your credit report. Things like paying your bills on time and in full, coming to agreements with collection agencies for any accounts that are delinquent, getting credit counseling or coaching etc are al steps you can take towards rebuild your credit.
Despite the various myths surrounding credit, the study revealed that for many people their credit scores are high priority. For instance:
- Nearly a third (32%) of respondents would rather have “excellent” credit than receive one million dollars
- More than two-thirds (70%) believe that having good credit is the key to unlocking the “American Dream”
- Nearly 90% of 18-24 year olds would choose “excellent” credit over access to social media
When it comes to credit, it's all about having the right information and taking the proper steps to ensuring your maintain your credit score for when you need to leverage it. What myths did you think were truths? Share your thoughts in the comments!
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Reference: Capital One Credit Confidence Study
Despite the various myths surrounding credit, the study revealed that for many people their credit scores are high priority! For instance:
- Nearly a third (32 percent) of respondents would rather have “excellent” credit than receive one million dollars
- More than two-thirds (70 percent) believe that having good credit is the key to unlocking the “American Dream”
- Nearly 90 percent of 18-24 year olds would choose “excellent” credit over access to social media
Reference: Capital One Credit Confidence Study