5 Things People Still Don’t Understand About Credit

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When considering how significant of an impact good or bad credit can have on our lives, it’s surprising to see how many people still know absolutely nothing about how credit works. It has been estimated that over 40% of all Americans have no idea what their credit score is, which is shocking. Credit is also routinely misused because of common myths and misconceptions about it. Making one mistake with your credit earlier on could have repercussions for the rest of your life, and you can’t afford to be in the dark about a subject as important as credit. Here are a few things many people still don’t get about credit.

You Can Repair Your Credit

A lot of people think that repairing your credit is something you can’t do voluntarily. But that couldn’t be farther from the truth. If bad actions can hurt our credit, good actions will help it, and all you have to do is to perform good actions that will benefit your credit.

One of the best ways to do this is to get a new credit card. This may sound counterintuitive, but your credit score is calculated based on financial activity. The goal is to generate as much positive activity as possible while reducing negative events. 

You can go for a regular credit card if you are 100% positive that you can still qualify for one. If you’re unsure, you can go with a secured credit card as the activity on these will usually be reported to credit bureaus.

Using a credit card to repair our credit is probably the smartest way to use a credit card, but there are many others. If you want to learn a few tips on how to make your cards work for you and not against you, we suggest you check out this Tally article on the smartest ways to use a credit card. They give a few important tips on how to use a credit card responsibly. They even teach you how you could use a credit card as a budgeting tool and a few bad habits you should avoid at all costs.

Closing Credit Cards Will Improve My Credit

Wrong again. Showing positive activity on your credit report will benefit your credit score but having less activity will make no difference. It would actually be better to pay that card off in full and leave the account open. This way, you’ll be able to reduce your credit utilization ratio, which is one of the major factors that will affect your credit score.

There’s Nothing Wrong with Making Multiple Applications

We would like to say, however, that you have to be careful with the number of requests for credit that you make within a short period. This will be interpreted as a very bad thing by most credit bureaus and could hurt your credit.

That’s because it shows that you may be a bit too eager for money. That is a sign of financial distress, and it will be reflected in your score. If you’re going to apply for credit, choose a company that will perform a soft inquiry first. This is where they’ll be able to assess your financial and credit information without making a direct inquiry on your credit report. They will then be able to tell you if you have a realistic chance of being approved.

It’s Always Better to Pay the Minimum on Your Balance

This is one of the strangest and yet most widespread myths circulating about credit. There is this idea that credit card companies love people who constantly pay the minimum on their balance because it allows them to make more money on interest. What they don’t say is that these people are also huge risks for credit card companies and have a much higher chance of defaulting.

Pay your cards in full every single month if you can. If you have debt on multiple credit cards, pay off the one with the highest balance first. This will have the greatest effect on your credit score.

Income Affects Credit Score

Credit scores have little to do with your income, believe it or not. Someone can have a great income, but spend irresponsibly, while someone with a more modest income may be treating all of their accounts like gold. Your credit score is more a measure of your financial habits and your ability and willingness to make payments than your income. Financial institutions will look at your income when issuing a credit card or a loan, but your credit score will remain largely unaffected by it.

Credit is something you need to know as much as you can about, or you might have to deal with the consequences. Understanding credit will also allow you to use it properly and unleash its true power.


Maudie Banta is a fashion and lifestyle blogger in Columbus. She is building her brand by sharing her philosophy on looking good while saving money and closet space. She has worked for various magazines in Los Angeles and Ohio styling and writing and is an associate writer for IL Moda PR. Follow her on Instagram: @MaudieLloyd or Twitter, or see her website for more information

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