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Even though most of us know how to properly use credit cards by now, these are Top 5 most common credit card “myths” I’ve heard and whether or not there’s any truth to them – enjoy! Add me on Instagram: GPStephan
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FIRST MYTH: Leaving a balance on your credit card helps improve your credit score.
Well, the reality is that, NO, carrying a credit card balance does NOT increase your credit score…it only costs you money because now you pay interest on your unpaid balance. And paying more interest on a credit card DOES NOT increase your score any further than if you paid it off entirely, in full.
Instead, here’s what REALLY helps your credit score…and it’s important to understand this, because I’ll be referring to this later in the video:
35% of your credit score consists of your PAYMENT HISTORY: This means you pay your credit by the time it’s due, without any late payments. And when it comes to this, paying off your bill IN FULL or just making the minimum payment and leaving a balance will affect your score THE EXACT SAME in this category, as long as you just pay on time.
30% of your score is calculated by your credit utilization: this is amount you have available to use, versus how much you actually use.
15% of your score is calculated by the length of your credit history…the longer you have credit, the more robust your score will be.
10% of your credit score is calculated by “new credit” – generally the newer your credit lines, the lower your score will be, and this has a small impact.
10% of your score is calculated by the number and mix of credit lines of you have…it helps to have multiple credit cards, an auto loan, lease payments, mortgage payments, or a variety of different “types” of credit showing you’re responsible at paying all of those off on time.
SECOND MYTH: Too much credit makes it harder to get a house or car loan
Back in the 70’s and 80’s, the conventional thought among mortgage lenders was that if a borrower had access to too much available credit, they posed a higher risk of default because they’d have the ability and temptation to use all of it. However, in the late 1980’s, the FICO scoring method began analyzing their credit files…and that revealed that borrowers were NOT more likely to default on their payment if they had more credit available to them. And the “temptation” of having more credit would not “corrupt” an otherwise responsible borrower who paid on time. In fact, they found that the more available credit borrowers had, the safer they were, and the higher the credit score they should have!
THIRD MYTH: You should cancel cards you no longer use
Unfortunately, doing this could end up dramatically lowering your credit score and in most circumstances, this is a REALLY bad idea that you should avoid. If you have an old credit card you don’t use, just keep it that way…make sure to still keep it open, put it in a drawer, forget about it, put it in the frozen in a block of ice, give it to me so I can buy stuff with it…I really don’t care what you do. As long as you don’t close it.
FOURTH MYTH: Opening up a credit card will lower your score.
The answer to this is one…is YES. Opening up a credit card WILL have a negative impact on your score…but this isn’t as bad as people generally make it out to be. From my experience, overall, opening up a new credit card has such a minimal effect on your credit score…and in some cases, I’ve opened up new credit cards and seen my score actually INCREASE. So when it comes to this, I don’t really worry about it. If it does impact your score, it’s minimal…and long term, there are usually more benefits adding different lines of credit to your account.
FIFTH MYTH: You should use old credit cards to prevent them from being cancelled
And this myth is true. Credit Card companies only have the ability to extend a limited amount of credit to people, and they only make money when people use those cards…so when they extend credit out to someone who just NEVER uses their account, they’ll often cancel those cards so they can extend that credit line to someone else who will actually use it and make them money.
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The outcome is the amount of cash you should earmark each month for your Vacation Fund. But to inform you the truth there is financial obligation everywhere. Some lenders may not co-operate in the least.
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How To End Up Being Totally Charge Card Debt Free
To start with, you have to stop getting financial obligations. This may likewise include dirt bikes, quads, jewelry, or furnishings. That’s the secret to ending up being debt totally free.
As I compose this, we are entering into this year’s World Series. It constantly appears there is a group coming into the World Series that was down last year, or was basically broke but difficult work and faith with vision got them to the top. I will have to confess the economic downturn entirely upset the strategies of lots of people who do not be worthy of something like that. Often many were not so far-off from retirement, their perfect tasks lost and lost some dreams. But similar to teams, effort and vision into the not to future is the secret.
The only financial obligation flexible is unSecured Debt. You can eliminate your credit card financial obligation however we will pertain to that later. The creditors will not deal with you if the financial obligation has actually been secured with any collateral. It is extremely essential to keep in contact with the creditor in case you fall back in payments on a protected financial obligation. Deal with them by all means and never ever avoid their calls. The lender has the power to reclaim or put liens on your residential or commercial property in case you fail to pay on a Secured Debt.
The very first thing to do is make a list of all your month-to-month income. You require to include everything so you have an honest concept of what you have to deal with.
Oh, oh, that is just what I stated it is coming out of the pockets of the person. Who would have thought that the basic public would be settling the debt of people that they do not even know? Ouch, that hurt. Do not misery now, whatever is going to be all right. Those in charge understand just what they are doing and they plan to keep right on doing it. They are offering away complimentary cash to those that they believe deserve it. Totally free federal government grants for debt relief are planned to make life easier for a picked few by providing an easy way of ending up being Debt Free.
Secondly, this type of debt most impacts your credit report negatively. Because this kind of debt is most unpredictable and dangerous – it’s called Revolving Debt because it can alter from month to month – it can truly sink your credit history. This can be a huge problem for your credit score if you have a high balance on your credit card.
Opportunities are high that you probably utilize one or 2 charge card regularly. The remaining charge card tag along in your wallet simply as a status sign. Or, you may be bring these around.
You need to ensure that you comprehend that the very best escape of a life strained with debt is to guarantee that you do not load any brand-new financial obligation. Believe we all know that part. Living within our means would be a great way to move towards a financial obligation totally free life in future. And among the most essential things to do in this direction would be to make sure that you always have at least three months of living expenses reserved as savings, deal with that first. Then start chipping away or swinging the bat, whatever slogan works, each swing or effort gets you closer. Never offer up.
The payment plan need to help you to pay off the priority loans quickly. Management, relief and debt consolidation all supply some type of solution to your credit issues. Make your Revolving Debt payments ahead of schedule.
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