Credit Score Myths

There’s a lot of information online about credit scores and it can be hard to know what’s true and what’s not, so in this article we are going to debunk 10 common credit score myths.

1) Not having any debt means you have a good credit score.
Having no debt might seem like the best way to keep your credit score high but, like a resume with no experience, it can also mean that the lender has no idea how responsible you are with credit. This is not to say you should get a credit card, there are other ways to build credit such as paying off a mobile phone plan or your utility bill on time.

2) Every Aussie has one credit score.
Every Australian has multiple credit scores, usually 3, as there are 3 main credit reporting bureaus who each have their own algorithms and credit scoring systems. Each lender may have a preference to one bureau so it’s important to know your score across all of them.

3) Checking your credit score will hurt your score.
This is false. There are 2 types of credit enquiries, hard or soft. A hard enquiry is when a lender requests your credit score with the intent of determining whether they should lend to you or not and this does impact your credit score. A soft enquiry on is when you or an agent seeks out information on your credit score without the intent of applying for credit.

4) Getting married will merge your credit scores.
Your credit score is not impacted by your relationship status. Once married, you will both still have individual credit scores however, any joint account activity will reflect on both of you.

5) Using ‘buy now, pay later’ services will negatively affect your credit score.
Buy now, pay later services such as Afterpay, Openpay and Zip Pay allow you to make purchases and pay them off over time, usually interest free. However, these providers don’t always assess your credit worthiness when you register so unless you carefully monitor your spending, you may end up with more debt than you intended. If this is the case, then it may affect your credit score.

6) You need to have a high income to have a good credit score.
Your income bracket doesn’t affect your credit score at all, as having a higher income doesn’t make you more financially responsible. What’s more likely to affects your credit score is steady employment and a regular stable income.

7) You need to go into debt to build a good credit score.
To build credit and improve your score, you don’t need to go into debt, you just need to demonstrate responsible credit behaviour, and this can be done through something as small as a monthly phone bill. Remember, your credit score reflects your credit history so staying on top of your payments and limiting the number of enquiries made are also good ways to maintain a good score.

8) The more debt you have, the lower your credit score is.
This may make sense on the surface, but not all debt is equal. There is good debt and bad debt and your credit score reflects this. An example of good debt may be a home loan because this is a healthy financial investment. On the contrary, bad debt could be a $20,000 high interest credit card or a $200 loan from a payday lender. If you are in debt because you recently purchased a home, it doesn’t necessarily mean you have poor credit, as long as you pay your bills on time, your credit will be fine.

9) A ‘bad’ credit score means you will never get approved for credit.
Credit scores can change. So, if you have a low credit score or you’re unhappy with your current score, there are things you can do to improve it like paying your bills on time and closing unused cards.

10) A credit repair company can improve your score.
Most of the time, a credit repair company can’t do anything that you’re not capable of. They will do simple research for you to help get your finances in order, however, if you’re a self-starter, you can start making these simple changes to take control your finances.

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