A credit score is one of the most important numbers in your financial life. It can impact everything from the interest rate you get on a loan to whether or not you’re approved for a new credit card. But despite its importance, there are still many myths and misconceptions about credit scores. In this article, we will debunk some of the most common myths and help you understand what really affects your credit score.
Borrowing Less Means A Better Score
One of the most common myths about credit scores is that you can improve your score by borrowing less money. This isn’t true – your credit score is actually based on how much debt you have relative to your available credit. By making payments on debts like personal loans or credit cards, you build your score because you are proving that you can responsibly borrow money and pay it back on time. However, if you don’t borrow anything at all, you won’t have a credit score. There are credit cards available that are specifically designed for helping people build their credit.
Your Score Is Affected By Your Spouse
Another common myth is that your credit score is based on your spouse’s credit score. This isn’t true – your credit score is based on your own financial history and behaviour. No matter how bad their score is, it won’t affect you. However, if you try to take out a joint loan of any kind, both scores will be considered in this instance.
You’ll Never Get A Loan With Poor Credit
A lot of people think that if they have a poor credit score, they won’t be able to get a loan at all. This isn’t true – you may just have to pay a higher interest rate. Lenders look at your credit score as an indication of how risky it is to lend you money. The lower your score, the higher the interest rate is likely to be. But there are plenty of lenders offering personal loans for bad credit and these are actually a very effective way of boosting your score again. By taking out a small loan and paying it back on time, you can begin rebuilding your credit. So, even though it will be harder, you can still get a loan with poor credit.
Your Address Can Be Blacklisted
People often worry about taking on the poor credit score of the person that lived in their home before them. There is a common myth that an address can be blacklisted and anybody that lives there will automatically have their credit score lowered. This simply is not true. Your address is not linked to your credit score in any way – it’s a personal record that is based on your financial habits and nothing more. So, it doesn’t matter if the previous occupant went bankrupt 5 times over, it doesn’t affect you at all.
If you want to maintain good financial health, it’s important that you stop believing these common myths about your credit score and how it affects you.