Contrary to popular belief, chewing gum does not stay in your stomach for seven years, the crack of your fingers does not cause arthritis, and when you flush toilet flushes in Australia, the water does not travel in the opposite direction. Nowadays, too many myths are considered to be true, and the same thing happens in the world of finance and credit. Let’s take a look at some of these myths that are often found when it comes to credit files.
Credit Myth # 1: Make a lot of money to boost your credit rating and qualify for a loan
Pretentious, we understand that you make a lot of money. However, unless you can prove that you are good with your money, you will not be lent a penny. At least, that’s the mentality of most lenders. Many people think that their income is synonymous with credit, and that is a far cry from the truth.
Your salary is not related to your credit rating. Your credit rating is carefully calculated based on various factors, including your total debt and your payment habits. Making a lot of money is not helpful if you can not pay your bills. That does not mean that making a lot of money does not help at all, of course. More than you make money, more than the maximum loan you can qualify for will be considerable- home, but it is not the only factor that will dictate your approval.
The myth of Credit # 2: All credit reports are the same
If you do a credit check at Equifax, and then at TransUnion, you may notice a difference. Maybe even a big difference. The reason is that the different financial companies are based on different credit institutions, and this causes a discrepancy in the reports, which varies your credit records.
Myth Credit # 3: The mere fact of not being late in payments is synonymous with a high credit rating
There is a reason why your payment history only accounts for about one-third of your credit rating, so do not make the mistake of thinking that only making your minimum payments on time will result in a credit rating high.
And yes, there is an explanation for that! If you manage to make all your minimum payments on time, but you have accumulated a large debt, your creditors would see you like a time bomb. You will be at a near expense of derailing your financial track which was up to date without any flaws. That’s why it’s important to be clever about the debts you undertake.
Myth Credit # 4: Repayment or settlement of your debt removes it from your credit report
Your payment history is your payment history and unfortunately, you can not make any changes to it. If you are in default on your debt or do not contribute any amount to repay it, it will be noted and the settlement of your accounts will unfortunately not help. Only the erroneous reports are removed from your credit file.
The myth of Credit # 5: Pay in cash favors your credit rating
Many people often make the mistake of thinking that not using credit shows that they are responsible for their money. Even if they are, this statement is not necessarily true. First of all, knowing that your payment history plays an important role in your credit report, it goes without saying that you need credit to build a credit rating.
Secondly, paying for all cash purchases may seem very questionable – especially if you are making large purchases (eg automobile, home) and you are paying cash. If you do not use credit at all, you could be rich, you could be frugal, or you could have a lot of undeclared income. But, remember, to develop a credit history, a credit history is essential.