With 2023 just around the corner, the last thing you want is to be engulfed in financial misinformation yet again. Unfortunately, incorrect financial information has become more rampant than ever, affecting the credit score of millions of people across the globe. Later in this article you are going to read all about Credit Myths and Tips for 2023.
Free yourself from all these misconceptions and learn the truth about credit myths and tips for 2023.
Credit Myths and Tips for 2023:
1st Myth: Credit Checks Don’t Affect Credit Score
Many people seem to be unaware that their credit score can go down every time a lender runs a credit check. A soft inquiry and a hard inquiry are the two main types of credit checks. A soft inquiry is when you check your credit yourself without any effect on your score.
On the other hand, a hard inquiry is when a lender checks your score to confirm if you are credit-worthy of a particular financial product. Sadly, hard inquiries can make your score go down.
Of course, there are a few exceptions. For specific financial products like an auto loan or a mortgage, for example, a few inquiries made within a short period are considered as a single hard inquiry. The period may differ depending on the credit scoring model.
However, all applications must be submitted within two weeks. It is called rate shopping which lets you shop around for loan terms that work best for you.
2nd Myth: It’s Good for Your Credit Score If You Close an Unused Credit Card
A lot of consumers seem to assume that closing unused credit cards will benefit their credit score. Although it may seem counterintuitive to keep a financial product you don’t even use, closing your unused cards may be damaging to your score.
There are two ways that closing credit cards ding your score: lowering your accounts’ average age and causing a spike in your credit utilization. Although there might be good reasons for you to close a card, disuse is not a good enough reason for taking the hit on your credit.
3rd Credit Myth: Your Score Will Benefit If You Have a Balance Left on Your Card
This is probably one of the stickiest credit myths out there. Most people think that it will be better for their credit score if they leave a balance on their card instead of making a full payment.
The truth is that it doesn’t even do anything good for your credit if you carry a balance. It can even be risky when the balance happens to be a huge percentage of your accessible credit limit. It is because it will only increase your credit utilization that has a significant impact on your score.
The interest expense is another downside of having a balance left on your credit card. Credit card debt, which happens even if you purposely have a balance left on your card, is among the most expensive forms of debt because of the interest rates in double digits.
And although you may assume that it won’t cost you that much to leave a small balance on your credit card, it can still be because of the way credit card interest is being calculated.
Say goodbye to these credit card myths and remember the tips to welcome 2023 with full financial confidence!