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Get Your Facts Straight: Breaking Down Credit Scores

Credit rules everything around us, but for many young people, its purpose is elusive. We know that we need it, but we also hear that it can be bad, so what’s the truth? Bold TV breaks down what credit is, why you need it, and how to make sure that you have good credit.

Credit misconceptions

There are a lot of misconceptions about credit. The biggest one is that if you’re poor, that automatically means you have bad credit. You can have a low income and still have great credit. All you have to do is stay on top of your payments. A simple way to maintain good credit while on a budget is to put small recurring payments like a streaming service subscription or a gym membership on your credit card. Then, pay that off every month. These are services that you will most likely use anyway and aren’t likely to break the bank.

People also think that if you have bad credit, you’re stuck in that hole for life. That just isn’t true. Firstly, credit resets every seven years, so you have a chance to start over and prove that you can handle your money well. Of course, waiting seven years isn’t the safest option. If you want to make a change, you have an outstanding debt that’s weighing you down, start by budgeting your money so that you are meeting at least your minimum monthly payments. Even better, pay a little more than the minimum if you can. Consistently paying on time will increase your score. Also, your score gets better with age, so don’t close your old credit cards. Some think that the less credit you have the better, but that simply isn’t true. Closing an account can actually negatively impact your credit score, so keep that account open, and just make sure you aren’t missing any payments on it.

Why you need credit

Good credit gives you the ability to buy a house, a car, get a loan and so much more! Low credit means you’re a financial risk, and agencies don’t want to take a risk on you. You even could have a hard time renting an apartment. So, start early with a low-limit card, making small payments to build your credit, or you may regret it in the long run.

 

To learn how paying off loans can help your credit score, check this out.

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