Credit Card Debt
Credit, Credit Card Debt, Credit Repair, Debt

Credit Card Debt in the USA – Top 6 Myths

Credit Card Debt – The world has been revolving around myths for a long time. Starting from stories about the lochness monster to cracking your knuckles can cause arthritis; all of these are only made up stories with no proof or relation to facts. Myths are popular pieces of misinformation that happen to be believable. As said before, myths happen with a number of subjects, and debts are no stranger. 

With the increase in bill payments and loans, today’s economy has made debts a significant part of life for people in America and has almost made it a necessity. An affordable amount of debt makes it easier and more convenient for people to reach certain goals in life and live a comfortable life. However, if the debt goes unchecked, it can seriously weigh down on you. 

Credit Card Myths

Credit Card Debt

The finance industry is a very dicey one, and one bad advice regarding personal finance can ruin your credit score significantly. More so, most of these bad advice is only credit card myths. Although most people are only trying to help, knowing how you can maintain an overall good credit score can prevent you from falling for such myths. Since we do not talk about finances, credit card debt tips, and similar topics as openly, it can take a long time for you to understand how you can improve your financial situation. Discussing such topics can also help you know what mistakes you have made in the past and how you can rectify them. 

As surprising as it might seem, it can sometimes be very hard to differentiate between credit card myths and truths. This is mainly because most people are insecure when it comes to their money, and they want to do everything and anything in their power to save enough, which is why they become gullible. 

One of the biggest mistakes people usually make with credit cards is stacking up huge debts, without realizing how it may harm them in the near future. according to the 2018 financial literacy survey, one in every four Americans do not pay their credit card debts in time, and one in every ten have debts in collections. In addition to that, about 36% of people in America carry their debt on a monthly basis. An average household in the United States has an average credit card debt of $15,482. This high number only proves that people easily believe in credit card myths and honestly think that it is actually helping them. 

What Are Some Myths Revolving Around Credit Cards Debts?

Irrespective of what goes around in the market, it is not always wise to shut old credit card accounts, and neither does paying off all debts get you a good credit score. These are only two of the several myths this article will shine a light on.

Myth 1: You Are Responsible for Your Spouse’s Debt Once You Get Married

There are several couples that believe that once you are married, your spouse’s debt loads are merged with yours. As believable as it sounds, this is absolutely not the case. although some couples might want to clear their debts together; however, neither are legally bound to clear the debt that the other was in before marriage. Nevertheless, there are certain ways in which you could be liable for your spouse’s debt, but that counts only the money loaned after the marriage. For instance, if you had signed your name on a loan’s promissory note or are one of the joint account holders of the credit card, you will be responsible for your spouse’s debt balance. 

Myth 2: Availing Credit Cards from Retailers Are a Nice Deal

Credit Card Debt

Well, that isn’t the case always. You should always read the details/fine print carefully, especially the section that explains the consequences of carrying a balance from one month to the following one. Credit cards for retail purposes can look attractive as they provide interest- less funding and rewards, but in case you carry over a balance, things can go downhill pretty soon. Certain cards also have a payment plan like scheme, where you can use the card to purchase something and then pay the amount interest- free over a span of time. But the real problem occurs if you fail to pay back the amount in the allotted time. This is when you’ll have to pay interest on the total amount you were initially charged and more often than not at a way higher interest rate than a normal credit card.

For example, apple gives its customers 18-monthtenure, free of interest on purchases using a Barclaycard us card. However, if you fail to repay the amount in the given time, a varying yearly percentage rate (23% approx.) is levied, as per the apple site. Your track record doesn’t help. Even if you have an excellent credit score, you’ll still end up paying an interest usually higher than 20%. So the baseline remains the same: read the terms and conditions/fine print.

Myth 3: You Checked It, So You Know About Your Credit Score

There are several places that provide a credit score free of cost, but that isn’t the same score the person you borrow from receives. Well, it could be higher or lower, depending on the provider, but how do you know? One major question that arises frequently is:

What are the various types of credit scores in the market? More than a dozen. There’s the popular fico score, one you’ve heard of and probably know well. However, there are about 60 different varieties that all just slightly differ from fico. Depending on the type of credit you are trying to receive, lenders might look for a different kind of score.

Example: in case of mortgages supported by Freddie mac or Fannie Mae, lenders tend to look for three kinds of fico scores that are provided by three major bureaus. They will look for a score that serves the purpose for that type of credit. You probably are wondering why the need for so many types of credit scores is necessary. There are three main credit bureaus — Experian, Transunion, and Equifax. Now their scores could vary depending on how they acquire the information. These differences occur because not all lenders report to all the above-mentioned bureaus.

Credit report

And some of them might delay updating your report. There are also various scoring models that score you from, somewhere around 300-800 based on the type of credit you require. Fico itself has nine variations of its scoring model. Even within each model, there are different versions that calculate the different levels of risk associated with mortgages, bank cards, installments, auto loans, etc. Despite all of this, it is not feasible to keep a count of all your scores. Tracking a couple of major ones and questioning significant differences or changes should cover it.

There are also various scoring models that score you from, somewhere around 300-800 based on the type of credit you require. Fico itself has nine variations of its scoring model. Even within each model, there are different versions that calculate the different levels of risk associated with mortgages, bank cards, installments, auto loans, etc. Despite all of this, it is not feasible to keep a count of all your scores. Tracking a couple of major ones and questioning significant differences or changes should cover it.

Myth 4: Lowering the Credit Limits or Unused Closing Lines of Credit Will Improve Your Credit Score

This myth is as baseless as it seems. Shutting off a line of credit might help impulsive spenders reduce their total debt amount, but as far as your credit score goes, this process does more harm than good. There is a score, namely the fico score, which takes into account when one opens a line of credit. With timely payments, accounts that were opened earlier can help improve the credit score. However, when you close an older line of credit, the added advantage of the credit score you had built is dismissed, which leaves your credit history to be younger. However, with a more recent credit history and untimely payments, your credit score actually worsens. 

Myth 5: A Credit Report Can Be Instantly Repaired By Paying Off Debts

Credit Card Debt

Although very believable, this is not at all true. Credit reports are only used to gather an overview of your credit history and current credit standing. In addition to that, negative information stays on your credit report for as long as seven years, and chapter 7 bankruptcy stays with you for almost a decade. Hence paying off your debts, might improve your credit score and credit report, but will surely not erase the past problems. Getting rid of negative information on your credit report takes time. 

Myth 6: Checking Your Credit Report Will Decrease Your Credit Score

This myth does not even sound true, but somehow people are gullible enough to believe this. On the contrary, the government encourages you to check your credit report at least once a year. not only that, but you are allowed to check your credit report every 12 months, once for free from each of the three credit bureaus. When you are determining your score, the fico credit scoring model does not acknowledge the requests for your credit report, so these requests do not really affect your credit score in any way. 

While these myths apply to all credit cards are same. Before availing one, you should make sure to do ample research on the interest rates, minimum payments, and how they work. However, keeping in mind the truth behind these myths can significantly help you make better financial decisions. Such information not only takes off the pressure of paying off huge amounts of debts but also streamlines your spending into more useful things. In conclusion, having control on your credit card debt and knowing what the right thing to do is can also be very influential for your credit score and further help you be more eligible for loans.