A credit score plays an important role for a lender to assess if you are worthy of credit. It is a number ranging from 300-850 that determines your credit-worthiness. The higher credit score you have, there’s a big chance that the licensed money lender will offer credit because it will mean that there’s a higher probability that you will be able to pay off your loan in a timely manner.
The factors considered in assessing your credit score are the length of credit history, repayment history, types of loans you applied, and your total debt.
A credit score is very significant in your financial well-being. You can leverage a great credit score in getting great deals on loans, insurances, credit cards, or even cell phone plans. With a good credit standing, you will be able to save more money that will enable you to focus on saving for your retirement, build your emergency fund, and pay off your debt.
You may know a lot of facts about credit scores but there is also inaccurate information floating around. This article aims to increase your awareness of the different facts and fallacies about your credit score.
So let’s take a look.
Fallacy: A low credit score will bring significant damage to your financial health
Fact: While this is true to some extent, it doesn’t mean that it is not preventable. There is no specific formula on how to improve your credit score. To avoid experiencing great damage to your financial health keep your debts to a minimum and pay your dues on time.
Fallacy: Your credit score will be the deciding factor if you will be offered a credit
Fact: Your credit score is important when it comes to the fate of your loan and credit card application. But the success of your loan application will not solely depend on your credit score. Licensed moneylenders take into consideration other factors such as your employment history, borrowing history, and debt-to-income ratio.
Fallacy: Credit scoring is unfair to minority applicants
Fact: Factors like gender, nationality, race, and marital status are not a metric for you to be offered credit. The Equal Opportunity Act (ECOA) prohibits lenders from considering information that is not relevant to credit-related information. The only thing that matters is how you manage your credit and other information related to your financial health.
Fallacy: Your credit score violates your privacy
Fact: Credit bureaus don’t reveal information that jeopardizes your privacy and identity. A credit score is just a numerical value that represents your credit profile. Credit bureaus review your application by looking at your borrowing history, outstanding debts, and your credit accounts.
Fallacy: A college degree is important to get a higher credit score
Fact: A college degree has no impact on your credit score. Lenders do not pay attention to your educational attainment and do not base their decision to offer you credit on your college degree or lack thereof. As long as you have a stable income, a capability to pay your debts, your educational background does not have any bearing on your credit score.
Fallacy: A poor score will affect your future credit application
Fact: A score is just a snapshot of your credit profile of how risky you are as a borrower at that particular point in time. Your past credit issues will only affect your credit score if those issues are not resolved. Your financial habits can change, your capability to pay can also change through time. Scores gradually change depending on how you handle your credit. Lenders look at the most recent information available on your credit profile and that will help them decide if they will offer credit or not.
Fallacy: Your score will drop if you apply for a new credit
Fact: Most credit scores are not affected by multiple credit applications but it will appear on your credit report information. If an application for new credit affects your score, it probably won’t drop at a huge rate. Applying for new credit could mean a higher risk but it won’t affect your credit score.
Credit scores can be a tricky part of your financial well-being but if you are aware of the common fallacies and facts behind it, you will be guided in making decisions that will affect your credit score.
It may be just a three-digit number but it is important information that helps decide lenders if you are credit-worthy. Just always remember, keep your payday loans manageable, make sure you have the capability to pay your loans, and always make payments on time.