For those that wish to borrow money, the state of a person’s credit score is crucial if they are to be accepted for a personal loan. It is not surprising therefore that a lot is written about how to improve a credit rating, or maintain a good score. However, not all the advice is pertinent, and not all the advice is helpful. With that in mind, Moolr take a look at credit myths.
Credit Myths – A Better Job Means A Better Credit Score
Not necessarily so. Many people assume that getting a raise or a better-paying job will help a credit score. Unfortunately, this is one of the more common credit myths out there. The truth is that your income isn’t factored into your credit score. While your employer information might be listed on your credit report, it doesn’t actually impact your score. Your demographics don’t impact it, either.
What may help of course is the fact that a higher income can help your credit score is if you use some of that extra money to pay down debt. Having more income to hand reduces your chance of missing repayments.
Credit Myths – All Debt Is Equal
Not so, Some debt matters more than other debt. A large amount of debt on your credit card is viewed with more suspicion than a modest mortgage debt. Additionally, some types of borrowing, like those from a company with a mixed reputation are not considered as “positive” as a loan from a well-known bank. The type of debt you have matters. This is taken into account in the credit scoring algorithm.
Closing Credit Cards Will Help Your Rating
This myth is prevalent among many, but the situation is not that simple. It is natural to assume that paying off debts is good and will be viewed as a positive thing by prospective lenders in the future. However, closing a credit card, far from helping you, might actually hurt your credit score. What often helps more is maintaining a balance on cards, making regular repayments and not maxing out all your cards.
Previous Occupants May Affect My Score
Not true. Nowadays, it makes no difference to your credit rating if the previous occupant of your home was a millionaire or a bankrupt. This is true as long as you never shared a financial connection. Lenders’ only concern is in your ability to repay them on time and in full. They do like to see stability, though, and if you’ve recently moved they will want to know your previous address, so they can check back. Living in one pace for a long time has a minimal positive effect. As credit myths go, this is a very popular one.
Credit Myths – If You Have Never Borrowed, You’ll Get Great Deals
You’d think that someone with no history of debt would be attractive to lenders but the reverse is often true. Lenders want you to have a history of making repayments on time and in full. This shows them that you can deal with handling debt. If you’ve never borrowed, they can not be sure of this, as there is no evidence to show it. Most lenders would rather see a credit report showing a few well managed loans or cards and regular payments.
