7 Credit Myths Debunked

Ok, the holidays are over. It’s the new year and your credit card hangover is just about to begin.

Consumer Reports reported in October of 2010 that 13.6 million Americans were still paying on their 2009 Christmas credit card spending, according to Bankrate.com’s credit card blog from last December.

In a December 19, 2011 Yahoo! Finance article by Gina Roberts-Grey, she details the personal finance myths can have on your credit score. “Incorrect beliefs can send your credit score plummeting, leaving you unable to qualify for a lender’s lowest mortgage rate or car loan, or a credit card’s most attractive APR.”

Here are the 7 myths she debunks about personal finance:

Making Minimum Payments Keeps Your Credit In Good Shape

Not so. Roberts-Grey credits George B. Meyer from Meriwest Credit Union in California as saying that 30% of your credit score depends on your balances. If lenders see that you are making only the minimum payments, they don’t see progress in paying things off. “Paying the minimum is the equivalent of running in place,” says Meyer. Having a standing balance can definitely affect your ability to get a loan.

Once You Pay Off A Collection It Will Be Removed from Your Record

No. Once you pay this, says Meyer, it shows up as a paid collection but it still shows you have had trouble paying your bills. While it is better than having an unpaid collection, it is still a potential knock on your record and it remains on the record for 5 years.

Only Errors involving Balances or Pay Offs Affect Your Credit Score

Roberts-Grey quotes Kevin Gallegos of Freedom Debt Relief as saying you should verify the information on your record. Information to pay attention to includes name, all addresses listed, birthday, Social Security number and any aliases used such as maiden names or middle initials.

Anything that’s wrong can affect your scores, especially if someone else’s information somehow gets mixed into your score.

0% Financing Deals are Great

No way – these are a trap for consumers, according to Meyer. They count on people not being disciplined about paying before the promotion ends. If you are late with the payments once they come due, it will hit your credit score.

The worst part? Even if you only owe a little bit on the balance, if you are late once the interest kicks in, they can charge you for the entire interest owed. Meyers told of an example where his client owed one payment and was 2 days late. The financing company sent them a bill for $2,300 in back interest owed. Don’t do this unless you intend to pay it off early.

Identity Theft Only Happens from Strangers

In Roberts-Grey’s article, according to Steve Rhode, a money coach on the tv show “Starting Over” about half of identity theft victims know the thieves – family members, roommates or other acquaintances. “The saddest cases are when the parent takes out credit in the child’s name and runs the debt up,” says Rhode.

Doing Your Shopping and Banking On-line isn’t Safe

Not so, if you are careful, according to identity theft expert Robert Siciliano, in Roberts-Grey’s article. Siciliano says that the bank or “e-tailer” may actually be safer than your own computer. As long as your anti-virus and spyware tools are kept updated, your computer should be fine for any of these sensitive transactions.

A double check is to also make sure the website is an https:// address for extra security when entering your credit card information or other personal information. The “s” at the end denotes a secure site.

Debit Cards Are Just as Safe as Credit Cards

According to Roberts-Grey’s article, Rhode says debit cards are the equivalent of a bank account and give people direct access to your money. With a credit card, you can review all the transactions and dispute them. With your debit card, the money is already gone if used fraudulently. That can lead to a big headache for you and your future credit to be aware.

So as the new year begins, you can think of all the ways to preserve your good score or improve upon the one you have now. Please read the full article here for all the details. Happy New Year!