Financial expert busts common credit myths
Before coming to America, many immigrants may have had certain assumptions about what life was like in the U.S. These beliefs may have been passed down from family members or they may have been stereotypes that they heard while growing up.
While some of these generalizations may have been confirmed, it's likely that the majority of them proved to be inaccurate, as times change and life often proves to be different from what was forecast.
There are some truths that hold up no matter what and remain constant in all walks of life. And as financial expert Jeanne Kelly writes for the Huffington Post, consumers will find this when they're dealing with money matters and credit. Even here, though, certain myths have held up over the years that need to be set straight.
For example, it's often said that in order for people to improve their credit scores, they need to pay off all of their expenses before a given bill's due date. While this is a smart thing to do, it's not the be-all, end-all in determining what a credit score will be. The average consumer has a variety of expenses they need to take care of – whether it's paying off a bill or making an international wire transfer to family back home – all of which, sometimes, can't be paid off in time.
"Life is busy and there are always plenty of things we need to spend our credit to purchase," said Kelly. "So if you can't use and pay off your credit card each month then the next best thing is to use each of your credit cards and pay them down to 20 percent of the high credit limit."
In other words, some people think that if they can't pay off the total amount, there's no sense in paying some if it. At the very least, strive to pay the bare minimum before the bill's due date.
Credit score involves more than loan activity
Another half-truth that's stood the test of time is that a person's credit score is a three-digit number entirely defined by how well a consumer has handled their credit cards, loans and mortgages. While this does, indeed, represent a good portion of a credit score, it's not the only aspects that define credit. Kelly notes that other financial purchases are considered as well, such as when an electric or water bill is paid. This makes utility bills an important expense to take care of in a prompt fashion.
The final myth that often keeps people from attaining the best credit score possible is the notion that if they have fewer credit cards, the better they'll appear in the eyes of creditors. Kelly notes that creditors like to see that people are capable of handling multiple lines of credit over an extended period of time, as good credit is something that's earned with experience and a history of making smart money decisions.
In other words, it's far better to have a history of credit card usage than to have never used them, as creditors will have nothing to base their decisions on when considering a loan or mortgage application.
It's important to point out that an individual's credit score can occasionally be hurt through no fault of their own. The Federal Trade Commission recently reported that approximately 20 percent of Americans have an error on their credit report, or a mark that suggests they haven't paid off an expense when they actually have.
This makes it crucial to review one's credit report on occasion, which can be done by requesting a copy from the U.S.' credit reporting agencies TransUnion, Experian and Equifax.