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Personal Financial Myths
The mission of the DebtCoach team is to assist our members with unbiased financial education and coaching to help you reach your financial goals. The following are common “killer” myths about debt that many Canadians have and the truths that are reality.
Myth #1: Debt is just about money.
Reality: Debt takes more than just your money. Debt takes your freedom, time, cash flow and opportunities.
Myth #2: Debt is a payment for goods or services.
Reality: Debt is not payment at all; it is a claim on future earnings. It is a mortgage on your future and your time. Ninety days or zero interest is not the same as CASH.
Myth #3: Debt is a painless route to instant gratification.
Reality: It is only painless for a season. Debt takes the waiting out of wanting, but not the sting out of repaying. Eventually you pay in cash or reputation. The insidiousness of debt is that in the beginning it gives its victims temporary pleasure.
Myth #4: I'll quit using debt later when I make more money.
Reality: If you have poor spending habits at a $30,000 income, it's unlikely they will be any better at $100,000 a year. Earning more money only means more debt for some people. If every increase in income is met with new expenses, you will never be free. Parkinson's 2nd law states, "Expenses always rise to meet or exceed income”
Myth #5: I am making my mortgage/rent/utilities/car payments on time this is going to help my credit score
Reality: Utilities and your rent will not show on your credit bureau unless they are in default and gone into collections. Mortgages with most financial institutions and automobiles financed or leased from dealers own financing divisions and many third party lenders may not report to the credit bureaus. The lenders chose to report the information to the credit bureaus and there is nothing you can do to influence this.
Myth #6: The more credit cards I have the better my credit score.
Reality: Major fallacy. Depends on number of accounts, balance owed versus limits, how long you have had the account(s) open, and payment habits
Myth #7: I make a payment monthly although sometimes not the minimum payment required. That way I avoid showing late payments
Reality If you do not pay the minimum payment the creditor can report the difference as a late payment
Myth #8: I make good money, own my house have no credit cards or loans. My credit score should be excellent
Reality If you do not build credit how would credit grantors be able to gauge your payment habits? With no credit history your credit score will be low. You need to build credit,
Myth #`9: I had a couple of accounts a year or so ago that went to collections... I paid them; these debts should no longer be on my bureau
Reality: Late payments and collection accounts will stay on accounts 6 years from date of last activity (date last used a card or made a payment)
Reality: Your overdraft is not considered a loan and does not report to the credit bureau unless you don’t pay it and then it would be reported as a collection on the bureau.
Myth #11: I sometimes have to pay one creditor by borrowing from another but I always make my payment
Reality: All you are doing is moving debts around. This can hurt your credit score.
Myth #12: I used to have many credit cards but I paid them off with a consolidation and closed the accounts. This should help my credit score.
Reality: You have just transferred balances around are now maxed out which can hurt you more than having some credit cards where the balances are lower that 70% of the limit
Myth #13: I get lots of credit card applications in the mail - are these creditors going into my report to inquire without my consent?
Reality: Unless you give written permission no-one should pull your bureau. Should you apply and be rejected you gave consent by returning the application.
Myth # 14: I co-signed a loan for my ex - it is his loan I just co-signed so I am not liable for this account and it should not show on my bureau.
Reality: As co-signor you are as responsible for the loan as the primary borrower and it will report on your bureau as if you were primary signor.
Myth #15: I have a spousal card on my husband's Visa. I have used it from time to time but it is his bill
Reality: By using the card you have now become as liable for the whole debt as if it was yours. The wording is jointly and severely.
Myth #16: I paid off an old account that was hurting my credit score. Why is it still showing on my bureau?
Reality: If you make a payment it creates a last activity date and all activities will stay on your bureau for 6 years.
Myth #17: I filed a consumer proposal, am making my monthly payments but my credit bureau still reflects an R9 credit rating although I did not file a bankruptcy.
Reality: Your credit bureau will reflect an R9 rating while you are making your payments and will reflect an R7 for up to three years after you complete the proposal (but not to exceed six years from the date your proposal was filed).After that time line the debts and proposal will be removed from your credit file as per the credit bureau internal policies.
Myth #18: If I file a bankruptcy or proposal, this will affect my spouse’s credit rating although he/she did not file.
Reality: Your filing a bankruptcy or proposal will not affect your spouse’s credit rating unless they file as well.
Myth #19: I filed a consumer proposal so I cannot apply for credit until I am discharged.
Reality: There is nothing stopping you from applying for credit while you are paying back a consumer proposal. However, the creditors have a right of refusal.
Myth #20: I filed a bankruptcy 2 years ago and I cannot get credit until 7 years from my discharge date
Reality: Once you have obtained your Absolute Discharge you can apply for credit at anytime. However the creditors will see a bankruptcy on your credit rating for 6 years after discharge and may choose to decline you if you have not re-established your credit over time. The DebtCoach team can assist you to rebuild your credit.
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