Just like gossip, money myths can spread quickly throughout families, friends and communities. If you aren’t careful, acting on one or more of these myths could have a lasting negative impact your financial future.
Money Myth #1: Checking your credit decreases your credit score
Checking and monitoring your credit report for inaccuracies and progress does not decrease your credit score. These are actually called inquiries and represent 10% of your total credit score. There are two types of inquiries:
Soft inquiries, which is when you – and not a third party – check your credit through a credit monitoring program or a website like annualcreditreport.com. In this instance, your credit score is not affected.
Hard inquiries, which is when a company or other third party checks your credit to determine whether they will approve you for a new line of credit. Hard inquiries signal to credit bureaus that you are attempting to take on a new financial responsibility. As a result, your credit score can decrease by 10 to 20 points.
Money Myth #2: Utility accounts automatically appear on your credit report
Even though your credit is checked when you apply to open new utility accounts, these accounts are not reported to credit bureaus on a monthly basis. The only time that a utility account is reported is when you fail to pay an outstanding balance and the account is transferred to a collections agency. Unfortunately, in this instance your credit report won’t reflect your past positive payment history on that account – it will only show the non-payment, which is very detrimental to your overall credit standing.
Money Myth #3: You should pay off your debt before saving
Being debt-free is definitely an achievement worth celebrating, but it is not a safety net in the event of an emergency. It is important to balance both paying off debt and saving at least three months of your salary for emergencies. Once that amount is set aside, you can then go back to aggressively paying down your debt.
Money Myth #4: Only the low-income have poor credit
It isn’t your income that determines your credit score, it’s your habits. While it is easier for individuals who make more money to qualify for larger credit accounts, it also makes it more difficult for those same people to keep up with their payments should they experience a significant decrease in income or an unexpected financial hardship. Long story short, the best way to keep your credit score in positive standing is to live below your means, no matter what your income.
All data and information provided on this blog is for informational purposes only. The opinions, conclusions and other information expressed reflect the views of the author and does not necessarily reflect the views or positions of UniRush, LLC.