The worst credit advice from family and friends
Many well-meaning people are eager to share their wisdom on credit matters, from the best ways to use accounts to how to approach credit reports and scores. You can even ask for it.
According to a recent CreditCards.com survey, 37 percent of American adults cited friends and family as their main resource for this type of advice. However, while those around you may have great advice for your personal life, what they say about credit may not be correct. Follow their lead and problems can ensue.
Here are 10 examples of really bad credit advice from friends and family – and what really good advice is.
1. “Participate in a credit card scam”
“I was at a party at the end of 2019 and someone was telling a group about their great idea to buy a bunch of stuff with their credit cards, then pay off their debt and pay it all off for pennies on the dollar,” says Eric Nisall, tax expert and founder of Comprendre Finances. According to this guest, this is a great way to move forward.
Better advice: use your credit card as a bona fide payment tool
Never go into a pattern like this. First of all, it is illegal to willfully commit debt settlement fraud. This strategy will also likely result in a tax consequence if more than $ 600 is forgiven. Plus, late payments, defaults, and resulting collection activity will burn a credit report and dramatically lower your scores.
2. “Don’t check your credit reports as it will hurt your credit score”
Kevin Haney, owner of ASK Benefit Solutions, said his mortgage broker friend gave alarming advice during a speech. “He told the public not to check their credit reports before buying a home because the inquiries would hurt their scores,” Haney said.
Better advice: check your credit reports, as it can help your scores
As a consumer, it is your right and your responsibility to review your credit reports and it has no impact on your credit scores. By knowing what is listed, you can make better credit decisions to improve your scores, which is especially important to do before purchasing a home loan.
3. “Challenge anything that damages your credit reports and credit scores (even if it’s correct)”
Another friend of Haney’s told him that he should dispute any problematic credit report entries, even if the information is correct or recent. With this method, people can purge the derogatory data that appears. The friend claimed that in return he would instantly gain in credit rating.
Best advice: dispute inaccurate or old information on a credit report
The rules regarding credit report disputes are clearly set out in the Fair Credit Reporting Act: only information that is incorrect, duplicated, or over time can be removed from a consumer’s credit report. Otherwise, the dispute is frivolous. To repair credit-related damage, use credit products responsibly and wait until problems like late payments and collection activity cease to appear. Any credit repair service promising to remove accurate information from your report is fraudulent.
4. “Maximize your cards to accumulate credit”
Coach Foundation CEO Sai Blackbyrn said his cousin told him to top up his cards to the limit every month, a strategy that would boost his FICO score. All that load would be useful, his cousin assured, because it shows high usage.
Best advice: charge consistently and keep debt low
Billing at least once a month shows regular usage, which is great, but the balance should be paid in full or well under the credit limit. Using credit is an important credit scoring factor, and it’s ideal to owe less than 30% of what you can charge. “I really wish someone had hit me on the head right now for not doing the research on my own,” says Blackbyrn who took the advice and found himself in a spiral of indebtedness.
5. “Avoid credit cards because they are dangerous”
“The worst financial advice I ever received was to stay away from credit cards,” says Tawnya Redding, blogger for Money Saved is Money Earned. This directive came from his grandparents who lived through the Great Depression. This generation also experienced rationing of food and produce during WWII, so they were taught to be very careful with money.
Better advice: use credit cards as a secure payment tool
There is no reason to avoid credit cards if you are committed to using them wisely. The bottom line is to charge the amount you can pay in full by the statement due date. No interest will be charged, making the loan free. Plus, you’ll build your credit score in order to qualify for credit cards that offer valuable rewards programs. As long as you don’t carry any debt, you will benefit from the process.
6. “Just make the minimum payments”
“My sister-in-law once told me that it’s best to just set my minimum so you don’t have to pay the full amount, especially during tight months,” said Willie Greer, founder of The Product Analyst. She claimed that as long as you reach that number, your credit will be good and you can live your life worry-free.
Better advice: Pay your bill in full whenever you can
It’s important to always make at least the minimum payment, but you’d better pay off your balance in full if possible. When you carry a balance from month to month, you start earning interest on your purchases. If you let this continue continuously, you will end up paying a lot more for the things you buy and the debt can become insurmountable.
7. “Don’t read your credit card statements”
Web development writer Daniela Baker says her sister gave her a very strange piece of advice: you know what you owe, so stop worrying about your billing statements. If you check them, you will just have a headache. “She hates seeing billing statements,” says Baker. “She said it was a boring reminder that you owe people money. Looking at a stack of billing statements adds to his financial stress.
Best Advice: Always Read Your Credit Card Statements
There’s a lot of essential information on the statement your credit card issuer sends you at the end of the billing cycle:
- payments and credits
- detailed list of purchases since the last statement
- balance transfers and cash advances
- additional fees and interest charges
- new balance
- credit available
- minimum payment amount
- due date
- changes to your account, such as an increase in interest rates
Reviewing your statement will help you spot any errors and help you manage your account properly. Information, not avoidance, will save you headaches.
8. “Immediately request a chargeback for unwanted items”
Monica Eaton-Cardone, co-founder of Chargebacks911, says she heard friends tell people to contact their credit card company to reverse a charge when they are not happy with a purchase. “For example, if they bought a pair of high heels late at night and regretted buying them on delivery, they were told that a chargeback was the best way to get their money back.” These people claim that it’s quick and harmless, and it doesn’t make a difference whether the refund comes from the bank or the store. The only important thing for them is that they receive a full refund.
Best Advice: Try to resolve the issue with the merchant first
Asking the seller for a refund before going to your credit card issuer is legally appropriate action, says Eaton-Cardone. You will probably get the resolution you want. It also reduces the cost of goods. “When you file a chargeback, the seller can be hurt in triplicate,” she says. “First, the bank forces the seller to automatically issue a full refund; second, the seller loses the physical product; and third, they are hit with additional penalties and bank charges.
9. “Become a credit co-signer”
Tana Williams, founder of Debt Free Forties, said the worst credit advice she’s ever received came from a friend who recommended that she co-sign someone else’s loan. According to the friend, this is a great way to help someone in need who does not have an established, positive credit history.
Best advice: keep your credit to yourself
Co-signing on a credit product should be done infrequently and with care. “The stress of someone you love would potentially leave you in the throes of having to repay the loan, not worth it,” Williams says. “Plus, if they don’t pay off the loan, it will affect your credit. If your credit score drops, it can affect everything from hiring a new job to increasing the cost of your insurance. If you want to help a friend, a monetary gift may be the preferred choice.
10. ‘Declare bankruptcy, even if the debt is due’
Todd Christensen, financial advisor and educator at Money Fit, says a college buddy told him to file for bankruptcy and pay off his $ 2,000 debt in court. With a Chapter 7 bankruptcy, he could erase that meager debt and all would be well. This friend, who was also a finance student, claimed it was the perfect plan.
Best advice: file for bankruptcy when there are no other options
Bankruptcy should only be pursued when you really do not have enough money to pay off your financial obligations. This is the last resort because it has many serious ramifications including being on your credit report for ten years. In fact, it is not available to those who can afford to meet their obligations. If you’re struggling to get past your debt, consider hiring a credit counseling service.
The bottom line
Of course, some of your friends and relatives can also offer you some great credit advice, but the best thing to do is to confirm with an expert source before moving forward. If they are right, so much the better! But if they are wrong, you might want to update them smoothly with the correct information. You will be doing someone else who listens to them a favor.