Home    Loan Center    Products    About CMA Pages    Resources/Español    FAQ  

Credit & Why It's Such A Mystery

To Most Consumers

 

 

If you’re looking to improve your credit, you’re probably reading as many personal finance books as you can, taking workshops, consulting with financial professionals, and talking to friends and family. Unfortunately, the worst advice is based on myths that continue to get passed on from consumer to consumer.

 

A Capital One study of consumers who were rebuilding or establishing credit found that a lot of confusion exists when it comes to credit cards. While roughly 53% of respondents said they were very confident when it comes to understanding credit, about 31% said that closing unused cards was good for their credit score and about 52% thought carrying a credit card balance from month to month was also beneficial.

Following erroneous money advice could put you on the wrong path and negatively impact your financial health for years to come. Financial experts were asked about the worst credit card advice they ever received or heard. Here’s what they had to say.

 

Carry a balance
    The better advice is to first pay off your credit card balance completely if you’re carrying debt. Then, don’t close out the card — this will drop your credit score in most cases. Instead, leave it open and just charge one small bill or purchase to it every couple of months. When your monthly billing cycle is over and you get your statement, pay that off in full before the grace period is over, thus not paying any interest. This is the best way to use credit cards to build and maintain a good credit score, and you don’t have to pay more than you normally would on a necessary expense.

 

   And when it comes to working with banks and financial institutions, use their products and services (cards, accounts) but forget their advice on how to use them. It’s not geared to help you.

 

Close out old accounts that you don't use
A piece of bad credit advice: If you think you have too many credit cards, start closing old accounts. It seems like this advice should be correct, but it’s not. Here’s why: The length of your credit history is part of the credit score equation, so closing your oldest accounts actually makes it look like you have a shorter credit history. This is especially important if you are in your twenties or are fairly new to credit. It’s also important if you plan to seek a mortgage or other loan in the near future. Lenders like to see a longer credit history, and you don’t want to sabotage that by closing an account that is not hurting you. Feel free to cut up the card if you don’t use it, but don’t close the account.

 

Credit counseling
The worst credit advice is to stop paying your credit cards and use a debt relief company that will stop paying your cards until they can negotiate the debt down after many months of non-payment. This ruins your credit. Some lenders will look at non-payment of your debt through a credit "counseling" service as a worse offense than filing a bankruptcy, and it may take your credit just as long to recover.  Work on getting your current credit card debt paid down so you have more available credit, start paying off credit cards and move remaining debt to lower interest rate cards.

 

And as always, contact your loan officer at Californina Mortgage and have your credit fully assessed so you know what you have to work with and if there are any credit issues that need to be addressed. We're happy to unravel the "Mystery."