Credit Myths - Mistakes That Will Make Your Debts Worse - Part 1

Posted By Team iBizExpert On March 24, 2022 06:39 AM Hits: 105

If you are in debt, your credit score is very important because it is a big part of how easy it will be for you to get out of debt. If you have good credit, it will be easier for you to refinance your debt, which will lower your monthly payments and give you more money to pay off your debts faster.

But there are so many false ideas about credit going around that it's hard to know what might affect your score. In fact, the difference between what people think affects their credit scores and what really does has grown to a level that has never been seen before.

For example, more than half of people don't know what a credit rating is or how it affects their ability to borrow money and, more importantly, how it affects their ability to get out of debt. So, here are some of the most common credit myths and what's really true about them.

Credit Myth 1: If you're on a credit blacklist, your credit score will be bad.

This is one of the most common ways people mess up their credit. It's also the myth that doesn't match reality the most. So let's get this straight from the start. There's no bad credit list. It just doesn't exist.

Even though that is true, millions of people still believe in it. More than 40% of people who are turned down for credit say that it's because they're on a list that no lender will give them a loan.

If you're turned down for credit, it's because your credit score shows a financial history that makes lenders nervous about whether or not you'll pay them back.

Lenders like continuity. They like to lend money to people who have a track record of paying back loans on time. This gives them more confidence that they will get their money back. So, credit reports have information about the loans you've applied for, been approved for, paid off, any missed payments, previous addresses, etc.

Red lining is when lenders discriminate against people or whole communities based on their gender, religion, ethnicity, race, or sexual orientation. This is illegal in many parts of the world, and it is less of a problem now that there is more competition among lenders than in the past.

So, if you want to improve your chances of getting a loan at a better rate, you don't have to get off a "blacklist." Instead, just give your credit history some stability. Try to stay at the same address for a few years, prove to lenders that you can pay back a loan, and make sure you're registered to vote.

Your name will be on your credit report if you're registered to vote. Lenders put a lot of weight on this fact because it helps them make sure they know who you are and where you live.

Credit Myth 2: The credit reference agencies decide what your credit score is.

This is yet another completely false idea about credit. But more than half of people think that credit ratings are set by agencies that check credit.

No, no, no, no, no and just to make certain, no!

Credit reference agencies do nothing more than gather information about your financial history and put it in a report. This includes information about your personal loans, credit cards, and mortgages, as well as your payment history and whether or not you have any missed payments, court judgments, or bankruptcies on your record.

Then, when you apply for a loan, your chosen lender can ask one of the credit reference agencies for this information and decide if you meet their criteria for lending. Most of the time, the lender will use the information you give them and their own formula to figure out your credit score. You get the loan if your situation earns a certain number of points. If your score is too low, your application will be turned down.

The only information that credit reference agencies give out is about your financial history. And if you don't agree with any of these facts, there are different ways to settle the problem.

Credit Myth 3: The people who lived in your home before you can affect your credit score.

This myth is so convincing that more than 70% of people believe it. It's easy to understand why. The common belief goes like this: You ask for a loan, the lender checks your credit report, and your current address sets off alarm bells because it's the same address that already appears on one of the mythical credit blacklists. The lender freaks out, and their computer spits out a letter saying they can't give the person a loan. Story's over.

Rubbish!

From the lender's point of view, it doesn't matter who used to live at your address. Credit is a matter of choice. Lenders only care about whether or not you can pay back the money you've asked to borrow. So they will look at your unique situation. For example, if you've moved in the past few years, they'll want to know your old address to make sure you lived where you said you did, not to find out if the previous or next owner is a bankrupt.

Tags/Keywords: credit rating, debt

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