Your credit score really matters as it determines your chances of getting a loan or taking a mortgage. It can be thought of like a report card as it gives lenders an insight into your debt and repayment track record. However, a majority of people lack the basic understanding of this parameter which is the reason they often get confused while applying for loans and mortgages. In fact, there are several myths and misconceptions related to credit scores that need to be cleared out so that you can avail the best deals and improve the score as well. Let us give you some facts that will clear these credit score myths and help you understand these important numbers better.
Fact #1: There Is Not Just A Single Credit Score
There are diverse scoring models that lenders use to assess your credit score. Each of these models uses separate methods and criteria for calculating the score. So your credit score may vary depending on the reference agency that the lender uses to find it out. Remember that there is not a single credit score as both consumers and lenders may rely on a variety of models that yield different values.
You will want to boost your credit scores on all 3 national credit bureaus Experian, TransUnion, and Equifax. This in turn will fix your FICO score as well as boost your VantageScore, the two credit scoring methods.
Fact #2: Paying Up In Cash Does Not Necessarily Improve Your Credit Score
If you think that making all payments in cash can improve your score, you are mistaken. The key to establishing and building credit is by using credit accounts rather than cash or debit cards. This approach demonstrates your efficacy in managing your credit responsibly and improves your chances of securing loans or mortgages at an optimal rate.
Fact #3: Closing Accounts May Not Give Your Credit Score A Boost
Undoubtedly, paying off your debts can boost your score but closing the accounts can actually be detrimental. Credit scoring models do not assess risk on the basis of credit available but rather be the amount you are using. When you close an account, the total available credit is reduced, which leads to the credit utilization going up and harms your score.
Fact #4: A bad Credit Score Does Not Disqualify You For Loans And Mortgages
Don’t be disheartened if you have a bad score because one that is lower-than- average does not imply that it will be impossible to access credit. Experts at Willow Mortgages say that the mortgage market is extremely difficult to navigate on your own, especially if you have a bad credit score. However, it is still possible to avail of a mortgage if you collaborate with an adverse credit mortgage broker who has the right knowledge and experience. These are the professionals who understand what goes into getting you the best deal despite low score issues.
Fact #5: Higher Income Does Not Imply A Better Score
Your credit score is not associated with your job title and income, even though this is a widely prevalent misconception. Scores are rather based on parameters such as credit utilization and debt management over a period of time. The only way your employment status can affect your score is indirectly, probably because the lenders would want to know whether you have a stable income to repay your debts.
Fact #6: You Cannot Boost Your Rating By Avoiding Borrowing
Your credit rating is more about your track record of paying off your debts rather than borrowings. This is because lenders would be more interested in knowing whether you have been borrowing responsibly and not how much you owe. Having no previous borrowing records will be actually a negative factor because it means that you have no repayment records. So if you want a healthy credit score, do use your credit card but ensure that you have a history that indicates credibility.
Fact #7: Missed Payments Do Not Stay On Your Records
As a rule of thumb, you must not miss on payments but don’t worry if you have missed one or two. They will not blemish your history forever, as the popular myth goes. Such entries do stay on the credit report but only for a specific period of time. And the best part is that the older an entry becomes, the less it is likely to matter. Lenders are most likely to rely on the recent data, which means that you need not worry about a payment that you missed years ago.
Keep Control Of Your Credit
Finally, it is important to understand that rejection from one lender does not mean that you will never get credit from all lenders. There is nothing like credit blacklist, so you need not worry about getting into one. All you require to do is to manage your debts and finances responsibly and take the right measures to keep your scores healthy and set them right if they go low. And remember that you can still get loans and mortgages with a low credit score, provided that you partner with the right financial, loan, and mortgage professionals.