According to government-backed Money Helper’s Financial Wellbeing Survey, one in two adults (45%) don’t feel confident managing their day-to-day finances. The number could shoot up over the coming months, as rising prices squeeze household incomes.
There’s plenty of money guidance out there, but some of it could cost you if you’re not careful. Knowing the truth behind potentially harmful myths about money can reduce financial anxieties. This could also create some great financial habits.
So, here are some common money myths – busted!
The eight money myths you thought to be true
1. ‘Credit is a bad thing to have’
Of course, being saddled with enormous debts isn’t a good thing. But not all debt will hold you back. Using a credit card Link opens in a new window for small, regular payments could actually help you move forward in life, for a number of reasons. That’s provided you pay off more than the minimum amount each month, and ideally, the entire balance.
Virgin Money has launched Virgin Money Slyce Link opens in a new window which allows you to enjoy the benefits of a traditional buy now, pay later product in a simple, safe and responsible way, while building your credit score for the future. You can Slyce any monthly spend of £30 or more into handy instalments and there's no instalment fee when you pay in one, three or six monthly payments - 9 & 12 month plans come with a fee. Plus, Slyce gives you a whole host of exclusive in-app content and guides to help you become more credit confident.
Jayne Sutherland, head of commercial strategy and analytics at Virgin Money, says: “Showing that you’re using your credit responsibly and keeping up with repayments can help to boost your score, making it easier to get a mortgage, for example, at a later stage. So provided you’re not getting into a debt habit, credit can be a good thing.”
You may also benefit from credit card rewards Link opens in a new window by earning cashback as you shop that can be put towards other things. If you’re buying a large item, you’re also protected under Section 75 Link opens in a new window which is a way to make a claim against your credit card provider when a company that you’ve paid using your card has let you down.
2. ‘Every credit search on an application impacts your credit score’
A ‘hard’ credit check leaves a footprint on your credit file and could lower your credit score. But plenty of lenders do so-called ‘soft searches’ that won’t be visible on your file. Credit eligibility tools are often used by high street banks, for example, or financial comparison websites to check your chances of your application being accepted.
“A soft search is pretty foolproof for consumers – it won’t impact on your credit score or leave a mark that lenders can see on your record,” says Lisa Briscoe, head of credit strategies at Virgin Money.
3. ‘It’s not worth saving if I can only put away a few pounds each month’
Slotting away just £5 a month will get you into the savings habit. This could set you on the path to building a substantial pot over the years.
You can simply set up a direct debit each month into an easy access savings account, and this way you won’t even miss the money. As the saying goes, “old habits die hard” – so once you start saving, you hopefully won’t stop.
4. ‘A mortgage deposit has to be 10%’
You may believe you need a 10% deposit to secure a mortgage, particularly during tough economic times. It’s true that the more you can put down as a deposit, the greater your chances of a low rate. But there are loads of options for buyers with 5% deposits, too.
Nicola Goldie, head of national accounts for Virgin Money, says: “During the pandemic every lender withdrew their 90% mortgages for around six months. But since then, the majority of lenders have returned to the market at 90% and 95%. These mortgages are commonplace.”
5. ‘You only need to start thinking about your pension when you’re over 35’
When you’re in your 20s and 30s, retirement will feel a long way off. They’ll be plenty of other things you want to spend your hard-earned cash on – and you may have short-term financial goals, such as buying a first home.
But putting off paying into your pension is usually unwise. It’s the contributions made in the early years of employment that make the biggest different to your retirement pot. They benefit most from what’s known as ‘compound interest’. That’s earning returns on top of returns – something that Albert Einstein called the eighth wonder of the world!
6. ‘It’s hard to get a mortgage if you’re self-employed’
In truth, the self-employed have masses of mortgage options. Ok, so the process of applying for a mortgage is different to borrowers who are employed. But lenders are increasingly flexible, and some even accept just a year’s worth to secure a mortgage.
Goldie says: “There may be differences in the way income is assessed, but there’s a strong market for self-employed customers seeking a mortgage, and a lot of options on the market.”
8. ‘APR is the same as an interest rate’
Actually, APR stands for Annual Percentage Rate. It includes both the interest charged, and any fees you’ll pay, such as an annual fee for a credit card, or application charges. For example, the interest rate may be 19% a year but the APR is 24%, as an annual fee adds the equivalent of 5% interest. It’s designed to give you an overall cost for credit which you can use to compare against other products. Under law it must be shown clearly by a lender before you sign up for a product.
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