Many Hindered from Better Credit by Belief in Myths

January 30th, 2013
in econ_news, syndication

Econintersect:  When it comes to credit many definitely develop bad financial habits. People want to spend less, but they open new lines of credit such as store credit cards anyway.  Almost everyone says they want to pay off debt, but only pay the minimum due each month.  Some actively try to turn credit around and boost scores and but they might actually have some delusions about credit that can keep these goals out of reach.


Follow up:

So what should one do? Below we cover five popular credit myths that that inhibit people from improving their credit and getting a better grip on finances.

1.  The Myth of the Single Universal Credit Score

People talk of about their credit score as if there's only one. In reality, each credit reporting agency calculates your score through bureau analytic processes, reported.  Often credits scores differ significantly from one rating agency to another.

2.  The Myth of Bad Credit Auto Loans

When consumers with bad credit need a car, they'll usually avoid buy here pay here (BHPH) car lots because of the lots' bad reputations. And the belief is that the buyer/borrower can expect to pay in excess of 30% interest at a BHPH lot. This is false information. Various dealerships offers such like buy here pay here cars at DriveTime, for example, list the average interest rate slightly above or below 20% APR, and comply with The Fair Accurate Credit Transaction Act and State Usury laws as well.  Yes. 20% is still a lot of interest, but for someone with poor credit it may be the only way they can get a car loan.  And for such a person the completion of that credit contract by paying off the loan may be an important step on the road to establishing good credit.

3.  The Myth of the Free Credit Score

Checking your credit score for free is possible, but it must be done correctly. Websites like want you to believe they're the place to go if you don't want to end up "selling fish to tourists in t-shirts." However, isn't all that it's hyped up to be. The services allow you to access only one report, and you have to pay a monthly fee, unless the customer cancels before they're able to get your money, reported. Borrowers will want to visit, a conglomerate website created by the big three credit bureaus, to instantly access each credit report once yearly for free.

4.  The Myth of the Closed Credit Card

If you think closing your account before you accrue too much debt will boost your score, think again. One crucial factor in determining your credit score is the proportion of total balances to total credit limit, reported. Closing accounts cancels a portion of your available credit limits, thus causing balances to seem ostensibly higher in comparison to the total limit. The ratio of current credit card balance to your overall credit limit (across all of your cards) is a primary element in calculating your score. Let's say a borrower has $20,000 of credit on a slew of credit cards and has a balance of $4,000. In this scenario: 20% of available credit is being used. Now if the borrower closes one credit card (with a $8,000 limit) and reduces the credit limit to $12,000, the borrower is using about 33% of available credit. These higher percentages subtract points from credit scores.

5.  The Myth of Too Much Available Credit on Credit Cards Can Hurt Your Scores

Some might think a credit lender will deny your credit app because you have too much credit available with the logic being that if a consumer were to use all of that available credit, she may not be able to make the payments on the card. And this may have been true in the past, but not anymore. According to a report by, there's nothing in scoring formulas that penalize for having too much available credit and, if anything, will prove your creditworthy, as more lower balance credit lines tend to make you look better.


Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.

 navigate econintersect .com


Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2018 Econintersect LLC - all rights reserved