Your credit score is one of your most valuable assets. After all, it could mean the difference between being approved or not for purchases like your mortgage, car loan, credit card or phone plan. So debunking some of the most common myths about credit scores is a great way to understand how they work.
Let’s first take a look at what a credit score is. Your credit score, provided by Experian, is a number between zero and 1000 that gives lenders an idea about your creditworthiness – how likely you are to repay money. It encompasses a lot of information, including:
- Your record-making loan repayments.
- How many loans you have.
- How many times you have applied for credit.
- Any defaults you have had.
Let’s take a look at some common myths.
Myth # 1 Checking your credit score will impact it
Wrong! You can check your credit score multiple times without it ever-changing as a result of you checking it. The only person who can see how many times you have checked your score is you. What will impact your credit score is applying for new credit (such as applying for some loans) – but your score will never be impacted when you check it through ClearScore. In fact, it’s a good idea to keep on top of your credit score so you can correct any errors such as debts inadvertently recorded twice. It’s easy to check your credit score for free at ClearScore simply by following. You can also take steps to actively improve it, for instance always making your repayments on time and in full.
Myth # 2 A default will always blemish your credit score
Also wrong. Only certain defaults, those that are more than $150 and which are more than 60 days overdue, are reflected in your credit score and report. Plus, they only stay on your credit report for five years. This is good news if you’ve had a default in the past and have tried hard to meet your obligations since then.
Myth # 3 Lenders don’t care – or won’t know – if you don’t pay your bills
Wrong again. Credit bureaus are alerted if you don’t pay your phone or power bill and the information will be recorded on your credit report if the bill is more than $150 and the bill is more than 60 days overdue. This information will in turn be reflected in your credit score and it could drop. This may hamper your ability to successfully apply for credit down the track. To maintain a healthy credit score it’s a good idea to always pay your bills on time and in full.
Myth # 4 Your credit score won’t change if you apply for many loans
It really DOES matter how many times you apply for credit. This is because if you apply for multiple credit cards or loans, it may appear as though you have an urgent need for funds, which could be a red flag for lenders. So try to apply for credit one application at a time.
Myth # 5 It costs me to see my credit score
This is also a myth. You can get a free copy of your credit score and report by going to ClearScore’s. Better yet it is always for free with ClearScore – you can check your report, alerts and so much more without paying a cent. Although other providers may charge a fee, ClearScore’s philosophy is you should never need to pay to get access to this information.
Myth # 6 No-one looks at credit scores
Hold this view at your peril. Lenders will at the very least check your credit report (which contains your credit score) every time you apply for credit. It may be of the main pieces of data they will use to decide whether to approve or deny your application. If your credit score is healthy, they might be more inclined to approve your application. But your application may be declined if you have a poor credit score.
Myth # 7 The richer you are, the higher your credit score
It’s easy to assume wealthy people have high credit scores, but this is not necessarily the case. In fact, your credit score does not take into consideration your assets. You may have thousands or more in the bank, or even own your own home outright, but if you don’t pay your bills, your credit score will reflect this. If you keep missing payments on any loans, no matter how much money you have, your credit score will be impacted. Which is why it’s so important to keep on top of your loan repayments.
Keeping on top of your credit score is one of the best ways to take control of your financial future. So if you haven’t looked into your credit score for a while, why nottoday?