Credit is a subject that causes intense emotions for many people. Fear and guilt are common among a lot of Canadians when they think about credit. But for some, credit can cause joy.
Joy? you ask. How do I get more of that?
The truth is there are many positive things that come with using credit wisely. But to do that, you need to know some basics about credit. Let's debunk five common credit myths.
Myth #1: Making a lot of money will help your credit score
How much money you make isn't what's important; it's how you use it. Salaries are unrelated to credit scores. Your credit score is calculated by different factors, including your total debt load and your re-payment habits (in Credit 101 we break down each factor that goes into calculating your credit score).
Myth #2: Making your payments on time results in a great credit score
There’s a reason your payment history only accounts for about a third of your total credit score. Making payments on time is great, but if you have taken on a lot of debt, creditors are aware that one big expense can derail you and that can negatively impact your score.
Myth #3: Paying off outstanding debt removes it from your credit reports
Nothing gets removed from your credit report unless it was there in error. Your credit history includes all the details of your debt, but that doesn't mean you can't make positive changes to improve your credit report in the present and the future.
Myth #4: All credit reports are the same
In Canada, there are two national credit bureaus: Equifax Canada and TransUnion Canada. You should check with both when pulling your report. Different financial companies report to different credit institutions, and because of this discrepancy in reporting your credit reports may vary.
Myth #5: Paying cash helps your credit score
Some people think that avoiding credit cards is a good option, but establishing a credit and payment history is a significant part of your credit score that comes from managing your credit card wisely. To develop a credit score, you need a credit history. Without a history, you’ll never achieve a “good” score.
A Servus financial advisor can help you figure out what products are the best fit to help you create a solid credit history and manage your credit wisely. Call us at 1.877.378.8728 and talk to an advisor today.
Originally posted on March 05, 2018.