5 common misconceptions about credit

For all the popular discussion and hoopla about credit scores - as well as credit in general - there still exist more than a few genuine and reasonably widespread myths about how credit works, both in our day-to-day lives and on a larger scale. In numerous cases, those harboring such misconceptions can't be blamed for not knowing credit inside and out. They may be among the underbanked, credit invisible or otherwise economically disadvantaged citizens of contemporary America, lacking the resources to seek all necessary information. Or perhaps they were misinformed by someone else with an incorrect notion at some point in life and never found the opportunity to correct it.

"More misconceptions exist about credit than you might expect."

In any event, what's truly important is identifying and debunking the most persistent myths about credit and setting people straight. From there, it'll be possible for these individuals to begin pursuing a better financial well-being with full force. 

1. Checking your credit hurts your score
To those of us who know credit-score basics, this particular myth may seem wild. Yet a considerable number of people believe it to be true. According to research culled from frequent questions asked by TransUnion customers, 43 percent of consumers think that because a lender's or real estate agent's credit check raises alarm among creditors, all checks must do that. Quite the contrary: Regular assessments of one's credit report and/or score help individuals keep abreast of their financial status.

2. Debts have identical values 
As noted by Experian, some forms of debt look worse to creditors and potential lenders than others, because they take context into account. A mortgage, or even a mass of student loan debt, isn't going to alarm all but the most parsimonious lenders. By contrast, sizable credit card debts amounting from various frivolities will look bad to anyone.

3. Prepaid plastic can bolster credit scores 
Credit or debit cards with a set dollar value on them that's already been paid to the creditor or bank are a perfectly reasonable payment method. However, Money Crashers pointed out that purchases from these cards aren't tracked by the TransUnion/Experian/Equifax credit-union triumvirate. In other words, no effect on a credit score.

4. Canceling a card is good for your score 
If your identity is stolen and fraudulent charges are made, it's not only smart but necessary to cancel existing cards in favor of new ones. However, it won't help your score to cancel a card you rarely use, or once overused. At best it'll be net neutral, and according to Experian, it may adversely affect your credit utilization ratio.

5. Marital status factors into credit
Creditors aren't concerned with your marital status, but 44 percent of TransUnion customers who called in with queries thought otherwise. In truth, a couple's credit only factors into major purchases if jointly applying for a lease or mortgage - one person with markedly worse credit than the other could impact the application.

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