Credit Score Myths That Can Lead To More Debt For Chicago Consumers
Could the idea of a perfect credit score actually be a damaging myth?
It seems that everyone from debt relief companies to singing pirates has been promoting the importance of a high credit score, but it turns out it may be an elaborate scam, say Chicago bankruptcy lawyers. Not that there's anything wrong with having a good credit score, mind you. It's just that most Americans are so terrified of doing anything to hurt their score that they fail to take actions to improve their finances, from saving money to filing for bankruptcy.
For instance, a recent story by Forbes.com points out that many consumers mistakenly believe they need to keep credit card balances to maintain their credit score. These folks are spending so much money paying interest that they have nothing left over to devote to their 401k, savings account or mortgage payment.
In reality, paying your bills by the due date accounts for the largest portion of your credit score, about 35%. If your credit card bills are so high that you're at constant risk of missing payments, you're damaging your credit, not helping it. Yes, the amount you owe matters somewhat - but it has far more to do with your debt to limit ratio (ideally you want to charge no more than 30% of your available credit) than whether you are carrying a balance. The only reason creditors encourage you to keep a balance is because it provides them with more money via interest.
Last week we alluded to another myth about credit - the idea that seeking help will hurt your score. While filing for bankruptcy can cause your score to drop initially, it's often the only realistic way to eliminate overwhelming debt - paving the way for your credit to improve drastically.
Credit scores are important, but they're also a lot less complicated than most of us realize. When we start taking care of our finances - by lowering debt and paying our remaining bills on time, for instance - the rest should fall into place. If your debts are too large to manage on your own, bankruptcy can provide a real solution. If you'd like more information about bankruptcy, consider a free personal debt analysis with a Chicago bankruptcy attorney.