Myths Around Credit Scores and Bad Credit
Bad credit – a phrase we’re all aware of, one that can cause problems when applying for credit or a loan. There are people that unfortunately adopt extreme circumstances of really poor credit, and there are those that might just have a lower credit score due to one missed payment.
The thing is, both scenarios will fall under a ‘bad credit’ bracket, but lenders can still look at this differently, it just depended on the severity of your borrowing actions.
Let’s have a nosy at 3 common myths surrounding your credit scores and bad credit.
It’ll Improve My Credit Score by Paying off Some Accounts and Then Closing Them
Part of this is true. Working on paying off your debt as fast as possible is obviously one of the best ways to improve your score.
However, closing your accounts completely can actually impact your credit score negatively. A key factor for credit reference companies evaluating your credit score boils down to the proportion of your total balances against your credit limit total. If you close some of your accounts, it essentially eradicates part of your available credit limit. This will then create the appearance of a higher balance against the overall credit limit you have.
Most credit reference agencies tend to go off a 30% rule – ‘try to only use 30% of the available credit’ anything over this can impact your score. So, if you have paid some of your accounts off, keep them open, even if you don’t use them.
Checking Your Credit Report Can Reduce Your Rating
Again, part of this factual. But as regards customers checking their credit reports – you have a right to view your own information whenever you want, without it impacting your score at any point.
Lenders Accessing Customers Credit Reports –
The worry around this thought mainly comes from the principle that when a lender checks your credit score, they’ll leave a footprint. This is true in some situations, such as when a direct lender needs to perform a ‘hard check’ on the back of you applying for a loan. Just be aware of this before look for a loan or credit, lenders will normally advertise this upon application anyway.
Furthermore, some lenders have now adopted a ‘soft credit check‘ approach. This gives you the opportunity to see if you’ll be able to be accepted or not, or the likeliness of a yes. If a company were to complete a soft check, then no detrimental record will be left on your account.
A Bad Credit Score Can Never Be Improved
Missed payments and late payments can stay on your report for around 7 years, but that doesn’t mean it can’t be rebuilt during this time and afterwards. By continuing to pay on time, seeking out further/improved credit options really will give you that increase/correction you’re looking for.
As your credit history continues to develop further maturity, the older the negative report marks become. The thing to consider here is – learn from your mistakes, be punctual with your credit agreements and your credit score will improve.