Whether you’re buying a home or a car, taking out a business loan or applying for a credit card to help flatten the monthly cash flow, applying for and accessing credit is part of life – and often essential for businesses to grow.
Being actively aware of your credit score, and knowing how you can improve it, is pretty important. After all, it can affect the finance offers a lender will be able to make to you, and it can affect your future plans too.
It used to be that your credit score was cloaked in mystery, lurking in the shadows – and how it was calculated was a closely guarded secret.
Did taking out that credit card improve our score? Or did it have a negative impact because we had credit?
Well, it was cloaked in mystery… until now.
Here are five of the biggest myths about credit scores explained and debunked.
Myth 1: Nobody really looks at your credit score anyway.
Woah! You need to be having words with whoever told you that one, because nothing could be further from the truth. Your credit score (a number between 0 and 1200 – ‘good’ is normally from 600 and upwards) is looked at by a whole host of people. Anyone to which you apply for a loan or credit of any description (from banks and non-bank lenders, to store cards and utility providers) will likely take a peek.
It’s also common for telco and utility providers to run credit checks on prospective customers, to verify you’re likely to pay your bills. If you own a business and you’re taking stock from suppliers or placing large orders, suppliers can also run a credit check on you and your business. In short, your credit score may well be looked at a lot more than you think.
Myth 2: Why worry about my credit score? I can’t control it.
You shouldn’t worry about your credit score, but you should be aware of it – and yes, you definitely can control it! Ultimately your credit score can affect whether or not you get credit or a loan in the first place, and what interest rate you pay on it.
It can affect whether or not you get a new car loan approved, or whether a tradie will give you credit or ask for payment upfront. Even if you’ve made some financial mistakes in the past, you can proactively improve your credit score.
The first step is to understand what contributes to your credit score, and then work on establishing a good record. The credit enquiries made over the past five years and your repayment history are the two biggest contributing factors to your overall score, so by limiting enquiries to only the essential and ensuring you pay on time, every time, you can start boosting your credit rating.
Myth 3: Using your debit card improves your credit score.
Debit cards and prepaid cards don’t make one jot of difference to your credit score – it’s the same as using cash.
It’s the responsible use of credit cards and other lines of credit that can positively affect your credit score.
Myth 4: If you have no debt, you’ll have a good credit score.
Not necessarily – because lenders are looking for evidence that you can repay on time. Credit providers are looking for evidence that you’re a responsible borrower, and that they can trust you to meet your payment commitments. If you’ve not had credit for a long time, how do they know?
Building up a good credit score in advance of applying for a home loan, for example, could give you a better chance of being offered a better interest rate than you would have been offered if you’d never accessed any finance before.
Myth 5: If you check your own credit score, it has a negative impact.
If you check your own credit score with GetCreditScore, it’s what’s classed as a ‘soft’ enquiry – meaning it doesn’t leave a dent on your credit file.
When a lender requests your credit report, it does leave a dent – and those dents can add up. It’s a wise move to check your credit report every now and again – you can keep track of those credit enquiries and, importantly, correct any mistakes that are on there. If there’s an error on your credit report, you need to know and get it taken off – pronto!
Find out your credit score for free at GetCreditScore.com.au – it’s safe, easy and takes less than a minute.
This article is brought to you in partnership with GetCreditScore.