Credit Score Myths by Credit Virgin
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There are many misconceptions about what helps to build your credit score. In this video we’ll dispel 12 myths about things that affect your credit score. We’ll start by knocking out 7 myths right off the bat… but the last four will need a little more explaining. John has been doing a lot of research to figure out what effects his credit score. Here are 7 things he had heard would factor in, but they don’t. John was really surprised to find out that these things have no effect on his credit score: his income, age, where he works, where he lives, his race, his gender, and his religion. All of these things have absolutely no effect on his credit score.
Wow that was fast! 7 myths have already been busted, but the next four myths are a little more complicated so we’re going to explain them in a little more detail. John had also heard that paying his apartment rent on time was helping him to build credit, but paying rent actually has no effect on his credit score. Unless, he forgets to pay rent. Then it can have a negative effect on his credit score. If John forgets to pay rent the owner of his apartment will report him to the credit bureau and this missed payment will hurt his credit score.
Next, John taught there was a possibility his student loans were helping him build credit, and technically student loans could help him build credit if he was making payments on his loans during college. However, like most students, John deferred his loan repayment until after graduation. Therefore, since he isn’t actually making payments, student loans will do nothing to help him build credit!
John also taught for sure that his debit card and bank account were helping him build credit, especially since he is always a responsible spender. However, having a debit card and bank account does nothing to help build John’s credit because all the money in his account is actually his. When he spends money on his debt card, he’s spending his own money. Credit reporting companies only care about loans and since no one loaned John the money in his bank account, well except maybe his parents. The credit bureau doesn’t care how he spends the money in his bank account. So a debit card or a bank account don’t build credit in anyway.
Last but defiantly not least. As a college student John pays an electric bill, a phone bill, and a cable bill but even paying all these bills on time does nothing to build his credit. Once again since no one is loaning him money to pay the bills, the credit bureau doesn’t care, but just like paying rent, if you pay your bills late all of these companies will report you to the credit bureau, and it will lower your credit score. Not fair you say? Yea we don’t think so either, but unfortunately there’s nothing we can do about it.
Like john, many college students have misconceptions about what will actually help them build good credit. To build good credit in college John needs to be very intentionally about where and how he spends his money. He should remember from the last video that the two main ways for a college student to build credit are through revolving lines of credit and installment loans. In the last video, we’ll recap what we’ve learned so far, and talk about developing good spending habits.