Myths have been a part of culture for centuries. While commonly associated with stories like Bigfoot and Dracula, some myths can actually pose a credible threat to your wallet.
Myths, defined as “a widely held, but false beliefs or ideas,” have plagued the financial services industry for many years. There is an abundance of ways that consumers are targeted with false information on a daily basis. Sources including the news and media, unreputable businesses, and payday lenders have continually misled the public and profited from it. As we continue to be fed more and more information, it’s critical that we debunk some of history’s biggest financial myths:
1) MYTH: I shouldn't check my credit score because it will decrease.
It’s not true that simply checking your credit score will harm it, because soft inquiries such as viewing your own credit report will not affect your FICO score whatsoever. However, hard inquiries such as actively applying for a new credit card or mortgage will have a small impact on your score. It is important to keep tabs on your score, so review it monthly within Elements online and mobile banking.
2) MYTH: Carrying a small credit card balance increases your credit score.
To increase your credit score, there is no need to carry a balance month to month on a credit card. One driving factor of your credit score is payment activity, so using your card and paying it off each month will continually increase your score. Consider scheduling a one-on-one credit review with a professional from Elements who can fully explain the five factors that impact your credit score.
3) MYTH: Credit cards should be avoided.
Credit cards can be useful if they are used responsibly. They tend to be a useful financial tool, especially if you are looking to establish credit. Additionally, credit cards can help your score increase over time if managed properly and if you keep your balance paid off or low, creating what is called “capacity”. They can be useful tools for the following:
- REWARDS: Earn money when you spend money.
- TRAVEL: Save money on international transactions and earn points on hotels and flights.
- PROTECTION: Avoid fraud and dispute inaccurate transactions.
4) MYTH: Credit cards can be my emergency fund.
It is easier to build an emergency savings than to pay off credit card debt. Using a credit card for emergencies creates a poor behavior pattern that you may ten to repeat over time. By doing this, you put yourself at risk of accumulating debt that you can't pay off and often end up paying large amounts of interest. Growing credit card debt makes it harder to build your emergency savings account.
5) MYTH: I don't earn enough money to save.
Regardless of your income, there is always a way to save. It’s important to start by defining your wants and needs so you can make changes to your budget. Oftentimes, the biggest change is learning to say no. Initially, a good goal is to save $1,000 for an emergency fund. An easy way to begin is to start saving just $25 a week and commit to making this a typical behavior, not an exception.
6) MYTH: All debt is bad.
Debt can be a tool to establish and build your credit score. It also allows you to purchase larger items without depleting your savings account. There are many types of useful debt, including mortgages, home equity loans, auto loans, and even manageable credit card balances. The problems arise when you rely on credit to live beyond your means. Whether this means carrying excessive credit card balances or making large purchases that do not fit your budget, these decisions can derail your financial wellness.
7) MYTH: I don't have enough money to invest.
Investing your money can lead to much higher returns, but also comes with higher risks. It's important to have a liquid savings account before investing. Minimum investments typically start at $250, so consider finding a small starting point and adding more money as your budget allows. One great way to invest is by taking full advantage of your company's 401(k) match program.
8) MYTH: It's too early/late to begin saving for retirement.
No one ever said, “I wish I would have saved less money.” The earlier you start putting money away for retirement, the more you will save thanks to compounding interest. It’s critical to aim for saving at least 10% of your pretax income.
While these eight money myths are only a few of the most common, and there are hundreds more prevalent in today’s society. To avoid falling for these misconceptions, use Elements as a trusted resource for financial advice. Our credit union is centered around people, not profits. Our Financial Experts are always willing to discuss helpful money topics with our members and provide relevant advice and education. Additionally, explore our Online Financial Education Center for modules on numerous topics. By becoming a more educated consumer, you will be more prepared when you’re faced with financial myths.