Over the years, credit scores have taken on a certain reputation. Many myths surround such a concept; myths that can be debilitating to anyone trying to get approved for a loan. We want to settle things once and for all; clear the air, shed light on, and bust these credit score myths.
Myth #1: I can’t receive a loan with a low credit score
This myth floats around the lending scene like no other. When you have a low credit score, you are considered a high-risk borrower; however, that doesn’t mean you won’t be approved for a loan. Some lenders will consider more than just your credit score when you are applying for a loan. These considerations include your credit report: a history of how you spend your money as well as your overall financial situation. If a lender can see that your habits are responsible, they may look past just the poor credit score and be able to offer you finance.
Myth #2: Checking my credit score will lower it
One of the biggest myths around credit scores is that frequently checking your credit score will lower it. According to Equifax, one of the biggest credit bureaus in Australia, your score is not affected by the frequency of checking it or by the frequency of requesting a credit report. Equifax rebuts this myth and instead recommends people to be checking their credit scores regularly, to ensure all personal information is still correct.
Myth #3: A high income translates to a good credit score
As credit scores are based on how you handle your credit and your bills, high income has no impact on your credit score. Someone who is a high income earner and keeps missing their bill due dates could have a lower credit score than a low income earner who is on top of their bills. Not only do credit scores not take your income into account, it does not show on your credit report either. The only work-related information included is the details of your current employer.
Myth #4: A large credit card debt will lower my credit score
Although having a large credit card debt is not an ideal situation, making repayments on time and not missing any of them will demonstrate to lenders that you are a responsible borrower. You may have a large credit card debt, but lenders will notice how you handle and manage the repayments, rather than the debt itself.
Myth #5: All loan providers will give me a better interest rate if I have a high credit score
If you have a high credit score, that doesn’t necessarily mean you are sure to snatch a low interest rate. Most lenders will take your credit score into consideration when offering you a rate, meaning your score will affect the rate. However, more traditional loan providers, like banks, may not consider your credit score as a factor when determining a rate. They could have a rate that they apply to any approved loan. This could be factored in when choosing the right loan for you, depending on if you go with a bank or with a digital lender.
Myth #6: I’ve never borrowed money, so I must have a good credit score
If you have never borrowed money, your credit history is limited or non-existent. Although this may seem ideal, lenders could be reluctant to approve your application if they cannot see how responsible you are with money. Your credit history is an integral part of being approved for a loan. It’s a good idea to check your credit score before applying for a loan; who knows, maybe you have one! If you’ve studied at a tertiary level in Australia, it’s likely that you will have student debt, meaning you will have a credit score.
Myth #7: Applying for multiple loans won’t affect my credit score
Every time you apply for a loan, it will be recorded onto your credit report. If lenders see that you are applying for multiple loans, especially in a short period of time, they could assume that you are a high-risk borrower, and end up declining your credit application.
Myth #8: It costs money to request a credit score and report
You can request a free copy of your credit report every 3 months from a credit bureau. Accessing it more frequently than 3 months may result in a small fee. As for your credit score, you can access it for free at any time and how frequently you want to for free from a range of credit scoring services.
Myth #9: There’s nothing I can do to build up good credit
Improving your credit may sound like a big job, especially if your credit score is not as good as it could be. However, there are ways that you can achieve such a feat, and, over time, achieve and maintain a better credit score. Such ways include:
- Check your credit report and update any details regularly
- Pay your bills on time
- Lower your credit card limits, making sure you don’t max out
- Keep old credit card accounts open, especially if they reflect positively on your payment history
- Minimise loan applications to keep your credit enquiries low and spaced out