Lie #2: Good Credit Fixes Everything
Raise your hand if you’ve ever heard of this or believed it yourself…Be honest!
Good credit can fix lots of things but not everything… Many of the people I speak to are worried that paying off debt will somehow drop their credit score. Nope, that isn’t the case. When you pay down your debt, you are reducing your debt-to-income ratio and that is a good thing. What could affect your score negatively is closing those accounts because you will no longer have any data on them in the future. There is no guarantee that your score will decrease but it can happen.
The main concept you need to understand is that your FICO score is calculated by a long equation. It would be impossible to predict the potential score adjustments without knowing that equation and having all of your credit history available. Your score is primarily affected the most by your credit history (on-time payments) and account balances as shown below.
If you don’t have a good credit rating of 700 or more it can affect several things. You could have higher insurance rates and interest rates. If your job requires a credit clearance that is a very important reason to heal your credit. And if you are looking to get a mortgage you may not qualify for a mortgage without certain scores depending on the lender. Otherwise, if you are looking to live a debt-free life you don’t need to worry about your score. If you have cash why would anyone need to check your credit?
Here’s the deal… there is no good debt. All debt is affecting you in some way. Don’t buy into the lie that some debt is better than others either. Since you are making the payments all debt is affecting you negatively because it is taking away your ability to do other things like save for the future or enjoy a vacation. Consider what you could be doing with your hard-earned cash rather than sending it to a creditor.
Finally, you can have good credit and no money in the bank while living paycheck to paycheck. You can have good credit and have no income which means your overall options are severely limited. You can have good credit and have no assets at all. Good credit doesn’t fix everything. It gives you access and potential opportunities but doesn’t solve every problem.
If you are wondering what your best next steps need to be so you can finally live a debt-free life, I’d love to connect with you. Schedule a complimentary session with me here.
