Credit and creditworthiness are important parts of modern society. Nonetheless, credit is often shrouded in mystery and burdened with a variety of myths. Let’s explore and debunk some of the most common credit myths.
Five Credit Myths Debunked
Credit and creditworthiness are important parts of modern society. Nonetheless, credit is often shrouded in mystery and burdened with a variety of myths. Let’s explore and debunk some of the most common credit myths.
Myth #1: You need credit to get credit.
Closely related to the “you need money to make money” myth, this common credit myth is simply grounded in falsehood. No one starts out with credit in life, even if their parents have good credit, they can’t inherit it the way they can money. Credit is always built from the ground up. That’s why credit card companies and other lenders have credit instruments for people with little or no credit history.
Myth #2: Once your credit score and history are bad they can never be fully recovered.
This myth is probably one of the most damaging; as some people with bad credit make no efforts to repair their credit even when they have the opportunity to do so. The truth is that credit scores and history are constantly changing. For example, debtors with bad credit can use bankruptcy to discharge their debts and then go on to reestablish creditworthiness that many would envy.
Myth #3: Eliminating all debt will help improve your credit rating.
Your credit score measures your willingness/ability to take on debt and effectively and reliably repay it. If you eliminate all of your debt and cut up all of your credit cards, you leave no way for lenders to measure your creditworthiness which will ironically lower your credit score.
Myth #4: Getting divorced won’t impact your credit.
While the act of getting divorced doesn’t negatively impact your credit score, the financial fallout from divorce does. If your spouse leaves you with unpaid bills or if you suddenly don’t have enough money to cover your bills due to divorce, then your credit score could be impacted due to loan defaults and late payments.
Myth #5: After bankruptcy your credit will take 7 – 10 years to repair.
While your bankruptcy is listed on your credit report for ten years if you filed a Chapter 7 and seven years if you filed for a Chapter 13, your credit score will actually increase after bankruptcy. You will be able to gain access to some types of credit immediately after the discharge of your case, but you will probably need to wait at least two years before applying for a mortgage.
