Most of us have heard about it, but most of us know how it works. Yes, this is the notorious credit rating. What exactly is a credit rating?
A credit rating considers a person’s credit worthiness by using a scoring model. The model will calculate your score based on available information and give you a score from 1 to 100. If the lender has set a minimum of 50 then you will be denied the application if you score 49, as simple as that.
Many people are scratching their heads and wondering which factors have an impact on creditworthiness. Here we take a look at 8 myths about credit rating that do not let go:
1. Age affects creditworthiness
Some of us think that age has a huge impact on the credit score but it is not. What matters is how much credit you have used in the past and how you handled this credit. With a reasonable use of credit cards, it is actually possible to build up a good credit rating from a young age.
2. My cohabitant has bad credit, so I expect I have the same?
If you are with someone who has had financial problems before then you should not let this stop you from marrying them. As long as the debt is not common, it does not exceed your credit rating.
As soon as you take up joint debt this will change, so it is important that you have good control, not only on your own but also your cohabitant’s finances.
3. If I avoid debt then I will not get a bad credit rating
Avoiding debt is not synonymous with a good credit rating. In fact, the lender wants to evaluate you as an applicant before granting a loan. If you have no history at all then it is very likely that you will end up with a more expensive loan than you could have received if you had credit history from before. In other words, it is perfectly OK to have debt. If you service your debt well, this will increase the likelihood of getting a loan with good terms.
4. If I credit check myself, it can damage my credit rating
You can safely order a credit check by yourself without risking damaging your credit rating. It can be ordered through Oxforian or Boliditet.
5. I always pay the bills on time so my score must be 100!
You should pat on the shoulder for always paying your bills on time, you deserve it! Now, in fact, even if you always pay your bills on time, you do not necessarily have an impeccable credit rating. Why do you like to think?
Let’s say you have a credit card with a credit limit of $ 10,000. If you spend $ 9500 every month, that means you spend more than 90% of your available credit each month. Using more than 90% of your credit each month can hurt your score as it indicates that you do not have good cash flow control.
On the other hand, if you spend only 50% of your credit then this can count positively as it shows that you have a good and balanced relationship with money.
6. Once you get a bad credit score, it never disappears
A credit score is not permanent, which means that it can change over time. If you are struggling with poor credit rating then it is extremely important that you try and get an overview of what you owe and to whom, so you can make a plan for how to repay the outstanding credit.
Take control as quickly as possible and it will be easier for you later in life.
7. If I lower my credit line then I improve my score
The principle is the same as in point 5. If you have a low credit limit but spend the full amount each month then this will count negatively. The most important thing is to find a nice balance between the amount you spend on your credit card and your credit line.
8. If I pay a lot in interest then I will definitely get a bad score
The amount you pay in interest rates each month has no effect on your score. What is important is how you have managed these interest costs.
At the end of the day, the most important thing is that you have good control over your finances and a healthy credit history. There is nothing wrong with having some loans, as this counts positively when the lender makes an assessment of you applying.