Myth or Fact: How to Uncover the Truth about Managing Your Money
We live in a time where answers to our most pressing questions are a click away. The sheer volume of information existing on the internet can make it easy to learn new skills or find solutions to any problem. It’s the first place most of us look when we have a question, and rightfully so. However, the internet is crowd-sourced. Anyone can post about any topic—even if they may not be qualified to do so. Googling a question about your credit score or best practices for managing your money may lead to learning ways to improve your credit profile. Or, you could accidentally stumble upon misinformation that leads to unintentionally adopting bad habits.
When it comes to flawless money management habits, having the right information is key, and knowing how to separate the myths from the facts is a valuable skill. Here are some of the most common myths we’ve seen and what you really need to know to manage your money like a pro.
Myth: Carrying a balance on your credit card will boost your credit score.
Fact: No, absolutely not. Unless you are completely unable, you should always pay your credit card balance in full and on time. Otherwise, you accrue interest which increases the amount you owe and increases your credit utilization ratio, causing your credit score to suffer. However, having some installment debt (like student loans) could benefit your credit score if you make your monthly payments on time and in full 100 percent of the time.
Myth: You should close your paid off credit accounts.
Fact: It may feel counterintuitive but closing credit accounts may hurt your credit score. Keeping accounts open even if you no longer use them can help keep your credit utilization ratio low. If you close an account, you have less credit available. This means your utilization ratio is automatically higher any time you use credit. Remember—your credit utilization ratio makes up 30% of your FICO score. Keeping this number low is key. Only close credit cards if you believe that having the card open will lead you into debt.
Myth: Paid debts are immediately erased from your credit report.
Fact: Of course, this would be great if it were true. But it isn’t. Your credit report is a thorough review of your credit history. This means you get the good with the bad. Your positive payment history will be reflected, but so will late payments, accounts that go to collections and bankruptcies. It typically takes 7-10 years for activity to leave your credit report. If you’ve dealt with delinquent debts in the past, don’t fret about this. Because it’s not something you can change, it’s more important to focus your energy on outweighing your negative payment history with positive payments.
Myth: Checking your credit score will hurt your credit.
Fact: Nope! You can and should check your credit score often. Checking your credit score is free and has no impact on your credit profile. Checking your credit score can help you monitor your progress and can alert you to fraud or identify theft.
Myth: The more money you make, the higher your credit score will be.
Fact: Income has no bearing on your credit score. More income can make a variety of things easier, including your ability to pay your bills in full. However, your credit score is a reflection on your ability to manage debt. You could make all the money in the world, but if you don’t pay your bills or manage your money properly, your score will not be very good.