Having a good credit score can lead to a range of different benefits.
However, with a bunch of myths floating around, it’s hard to understand what actually improves your credit score and what could jeopardise it.
Whether you’re looking for a discount on your home loan or to secure new finance for yourself or your business, knowing your credit score and actively trying to improve it will shape your financial future for the better.
Here are 5 myths that you might have heard before that are far from the truth.
1. It’s too difficult or expensive to check your credit score
Getting your credit score doesn’t require much effort or time.
Knowing your credit score is the first step to improving it!
2. Requesting your credit report can hurt your credit score
Hence, checking can be just as important as checking your credit score because it allows you to find and correct any mistakes that might have been made by reporting bodies.
Checking your credit report does not have any impact on your credit score.
However, when a lender requests your credit report to determine your capability to make repayments, there is a slightly negative impact.
Therefore, be careful with the amount of lenders you approach.
3. Having a substantial income or bank balance equals a good credit score
Though lenders look at your income when assessing your ability to make repayments, your income and your assets do not affect your credit score at all.
Your credit score only considers your history of borrowing and repaying.
If you have a substantial income or bank balance, you could use it to your advantage by getting rid of any high limit credit cards or loans you don’t need.
But regardless of how much you make or have, you need to make your repayments on time to show healthy borrowing behaviour.
4. Having no debts means you have a good credit score
If lenders bring up a completely blank credit report, it gives them little assurance that you’re a responsible borrower.
Only using debit cards and prepaid cards is the same as using cash.
It shows nothing about your borrowing and repayment capabilities and won’t make an appearance on your credit report.
The thought of having a credit card and having to make repayments in time can be daunting.
However, being able to make regular and punctual repayments will help your credit history, proving to lenders that you’re a good candidate.
5. The amount of credit card debt you have affects your credit score
In the US, your credit score is partly based on your credit utilisation ratio which could be why the survey also found more than two thirds of Aussies believes it affects us.
However, in Australia, only your credit card limit is recognised, not how much you’ve borrowed out of it.
Therefore, it can be a good idea to choose a credit limit that is just enough for you.
Improving your credit score ultimately comes down to proving that you’re a responsible borrower that can make repayments on time. Be active in ensuring that you borrow within your means and never miss a due date. Hopefully, the next time you check your credit score, you’ll see a positive difference.
Bessie Hassan is a Money Expert at finder.com.au
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