No matter your age or the stage of life you’re in, credit is a crucial part of financial health. There’s a lot of misinformation floating around out there, so here are some common credit myths, debunked.
Myth #1: I have to allow interest to accrue on my credit card purchases in order to build credit.
Fact: Accrued interest on a credit card does not positively impact your credit. In fact, it hurts you more than anything. The five categories that make up your credit score are: payment history, amount owed, length of credit history, new credit, and type of credit used. Allowing interest to accrue on your purchases only costs you more in the long run. It can also impact how much debt you have if interest begins to compound, which can negatively affect your credit.
Myth #2: Checking my credit will always hurt my credit score.
Fact: When you apply for a loan, credit card, or other form of credit, a potential lender does a hard inquiry to check your credit. This counts as an inquiry that will impact your credit score. There are also “soft inquiries” that include instances such as monitoring your own credit. These do not impact your credit score and are only visible to you on your credit report.
Myth #3: If I pay off a debt that was delinquent, it will repair my credit automatically.
Fact: Negative information can stay on your credit report (and therefore impact your credit score) for seven years. There are some situations where it may remain longer, such as bankruptcy. Paying off your debt will not repair your credit right away; it will take time, effort and patience to get your score back to where you’d like it to be.
Myth #4: If I cosign for my child’s car or student loan, only they are responsible for paying it back.
Fact: While your child is responsible for paying off debts in their name, once you cosign a loan, you become responsible, as well. If your child isn’t able to pay their debt, the companies will come to you as the guarantor for the payment. If these debts become delinquent, it will hurt your credit, as well as your child’s.