Common Credit Myths and Misconceptions
Your credit score matters. A good score shows that you are creditworthy and allows you to take out a loan at a reasonable interest rate to buy a car, a home, or other necessities you can’t readily pay for with cash.
But how do you earn a good score? There’s a lot of misinformation out there that leads countless people astray. Here, we take a look at some of the most common credit myths and whether they have some truth to them or not.
6 Common Credit Myths and Facts You Need to Know
The truth makes a big difference. Have you been taught any of these credit myths?
Myth #1: Paying Off Missed Payments Will Remove Them from Your Report
Negative records like late or missed payments can stay on your credit report regardless of whether you’ve already paid them back. However, you’ll look more trustworthy to creditors if the report shows that your debts are paid.
These activities can stay on your credit report for up to 10 years, depending on the credit bureau. For instance, Equifax leaves missed payments on your credit report for up to seven years (although they usually hurt your score less as time goes on).
Myth #2: Checking Your Credit Hurts Your Score
Checking your credit score by yourself, such as through free credit monitoring apps, won’t lower the score. They’re considered soft inquiries and won’t appear on your credit report.
Conversely, hard inquiries can impact your credit score. These occur when creditors have to check your report—with your consent—when reviewing your loan application. Having too many hard inquiries within a short period of time (around a year) can lower your score because it indicates that you’ve been opening or at least applying for several credit lines, which often means you’re at a higher risk of being unable to pay them back on time.
Myth #3: Cosigners Have Joint Credit Reports
Cosigning is when you sign for a loan with a borrower who can’t qualify on their own. The cosigner serves as a financial backup if the partner can’t pay back the debt.
But this doesn’t mean you’ll share a credit score. Instead, any good or bad activity for that loan will reflect on both you and your partner’s individual credit. It’s important to make sure you only cosign for someone reliable. If they miss a payment, it will show up in your credit report.
Myth #4: Credit Repair Agencies Can Get Rid of Negative Records Themselves
This is one of the more dangerous credit myths, as credit repair agencies may only:
- Help analyze your credit report
- Search for inaccuracies
- Dispute errors with creditors and credit bureaus
Under no circumstances are they legally allowed to take out any negative information like late or missed payments on your credit report.
If you’d like to save money, you can learn to review your credit report so you can spot discrepancies and bring them up with the credit bureau yourself. This saves you from having to find a credit repair agency in the first place.
Myth #5: Loans Are Always Approved if You Have Good Credit Scores
A high credit score does give you a strong start with the lender, but it’s not the only factor that they consider when approving your loan. For instance, if creditors find that you’re still paying back several loans, they may be more hesitant to approve your loan since they’re not sure if you can still make room for more payments.
The lender may also check your employment and income history. This helps them determine whether you can actually afford to pay back the debt.
Myth #6: Making and Saving More Money Improves Your Credit Score
Credit bureaus don’t assess your income and bank account when computing your credit scores. What they’re focused on is whether you pay back your debts on time and if you can pay them in full.
But as we’ve mentioned above, lenders will often ask for your income information when checking your loan application. A larger income gives you a better chance at a higher loan amount. Having a higher income can also help your creditworthiness in the eyes of lenders because it lowers your debt-to-income ratio. For example, consumers that ask for the same amount of money, but one consumer makes more than the other can receive more favorable terms than the other.
In the end, the most straightforward way to improve your credit score is to make your payments on time. It’s also vital to study your credit reports regularly, so you’ll know what else is affecting the score.
Bonus Myth: Getting a Loan is Impossible with Bad Credit
Now that you know these credit myths (and the facts behind them), you can make informed decisions on how to get a better credit score and increase your chances of qualifying for the loan you want.
But even if you have a low credit score, getting a loan isn’t impossible. Here at Lift Credit, we offer bad credit installment loans. We don’t require FICO score checks, and your loan won’t affect your score. Furthermore, Lift Credit personal loans have lower interest rates and a longer term than payday loans, allowing you to adjust your payment schedule to suit your situation.