Most friends, family, and coworkers love to give advice. If you’ve asked them for credit advice, however, you’ve probably heard some pretty terrible suggestions. There’s nothing wrong with seeking advice about your finances, but make sure you do your research before you start implementing others’ ideas into your own financial game plan. After all, following bad credit advice could dig you into a deep hole of debt and regret. Fortunately, you can fix your bad credit if you do happen to follow someone’s bad advice.
To help you determine the difference between good and bad credit advice, here are a few real accounts of the best and worst credit advice people have received:
Best Credit Advice: “When I bought my first car, I was determined to pay it completely in cash. I mentioned my plan to an older co-worker, and he suggested that I instead make a big down payment but take out a small loan to pay the rest. That way, I’d have a track record of making payments responsibly. He’d paid for a car outright in his 20’s and regretted it because when he went after a mortgage, later on, his lack of a strong credit history made the process more difficult. He also knew I was using almost every penny of my savings to buy the car, leaving me with little cash in case of an emergency. I followed his advice because rates were low and his experience made sense to me. I still paid for over 50 percent of the car upfront, though. Even with the low rates, I hated the idea of paying interest.”
Worst Credit Advice: “The worst credit advice I’ve ever received (and I still hear people give this advice) is that you need to carry a small balance on your credit cards to improve your credit score. The theory seems to be that carrying a balance shows you are using your credit without overusing it, thus showing some level of self-control and responsibility. In reality, carrying a balance is worse for your credit score because higher credit utilization is worse than lower credit utilization and you pay interest for no good reason.”
Makenzi Wood — Personal Finance and Frugality Blogger at Picky Pinchers
Worst Credit Advice: “The worst credit advice I ever received came from my dad. To establish my credit, he helped me get several store credit cards in my name. He then instructed me to blow through the cards and spend up to my credit limit. I was 18, so he didn’t have to beg me to splurge on myself with some retail therapy. Anyway, once I racked up all the charges, he said I could only pay the minimum payments moving forward. It took MONTHS to pay off all the debt with the minimums. He said it’s important to ‘let the companies make a little money on you’ to boost your credit score.”
Best Credit Advice: “The best advice I received was to pull all three credit reports for free to confirm the accuracy of the information before applying for a credit card. My statements incorrectly stated that I worked at a pizza shop and had a lien filed against me which I didn’t. My FICO score dramatically increased after the data was corrected. The credit card companies could have denied me a credit card based on wrong information.”
Best Credit Advice: “The best piece of credit advice I’ve heard is to not max out your card and make each payment in full and on time. Unfortunately, there is no quick fix to improving your credit. However, showing that you are a responsible borrower by keeping your utilization at a minimum and not carrying a balance is one of the easiest ways to improve your credit score.”
Worst Credit Advice: “One of the worst pieces of advice that I’ve heard is that you have to max out your credit card to show that you are able to pay it back. This is not sound advice. Your credit utilization rate makes up roughly 30 percent of your credit score, so you want to keep your overall use below 30 percent. If you have a $300 credit limit, try not to use more than $90/month.”
Best Credit Advice: “The best credit advice that I got came from my best friend, and the advice was, “you need credit to live in this country.” I am an immigrant and in my country, there is no credit, everything is cash. To buy a house, you need to have the entire price in cash. Since I did not grow up in the United States, I did not understand the value of having a credit history. I was still a believer in all cash. I did not want to buy anything unless I could pay for it in cash. I thought buying something on credit is irresponsible behavior, because after all if you don’t have cash, why are you buying? My friend changed my mind by explaining to me that everything here works on credit and I could improve my financial situation by improving my credit. I finally got a credit card in my late 30’s (before I only used my debit card) and slowly built my credit. I ended up purchasing my favorite luxury car and several properties based on my credit. Had it not been for my friend’s advice, I would be struggling to buy my first property because I wouldn’t have enough cash on hand to completely pay it off.”
Best Credit Advice: “The best credit advice I have received and given is to pay more than the monthly minimum whenever possible. With the average credit card interest rate being about 15.59 percent in 2017, paying the monthly minimum can quickly put you into a hole. According to NerdWallet.com, the average household with debt owes just over $15,500 on credit cards. That being said, if you were to pay a minimum 3 percent of the balance each month at an interest rate of 16 percent, it would take you nearly 21 years to eliminate the debt. In that time you would have paid almost $12,000 in interest. However, if you were to pay even just 2 percent more (5 percent) of the balance each month, you would pay just over $5,000 in interest and eliminate the debt in 19 years. Although this is still a significant amount of time spent paying off the debt, it can help cut the amount of interest paid over that time in half.”
Worst Credit Advice: “Don’t pay off your mortgage because it’s tax deductible. Why pay a penny more interest than you need to and the government doesn’t give it all back to you (from friends and coworkers). I ignored this advice and paid off our mortgage in five years for the first house and seven years for the second.
Manage to a payment. So, instead of negotiating the price say ‘I can only afford $X per month.’ Okay, they’ll finance those appliances for 10 years at 20 percent interest and your payment will only be $50 per month (from a coworker and a relative). I never took this advice.”
Best and Worst Credit Advice: “The best and worst credit advice I was ever given was to use a credit card every month. On the one hand, this builds my credit as I pay it off every month. However, if I were to lose my job then it would become very easy to continue the habit of using that credit card since it helps me get things I now can’t buy any other way. That could easily put me in a hole when I’m using a card without the funds in my bank account. Using credit cards can be great for people to build their credit or overcome extremely short-term cash flow gaps that they know they can pay off in a week or two. However, they also can be damaging to your future if you misuse them in any way. You should treat that responsibility the same way you treat a 16-year-old getting their driver’s license for the first time — it’s a great responsibility.”
Your Credit Future
When it comes to taking and following credit advice, first determine if the person giving you the advice is actually good with credit. For instance, if an aunt or uncle with a poor credit history gives you credit advice, let it go in one ear and out the other. Although it may be difficult to ignore bad advice coming from family members or close friends, your credit future will be much brighter if you only follow advice from those who expertly manage their credit and finances and if you do your own credit research.