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Busting Credit Score Myths

Have you ever checked your credit score and it’s lower than you expected? Bad credit scores can give you a bit of a fright. If you’re trying to wrap your head around the ins and outs of credit reporting, it’s easy to feel tricked by all of the intricate rules.

Don’t get spooked – Gedda’s here to help. We’re busting eight common credit score myths below.

Fact – When there are multiple inquiries on your credit file in a short space of time, it signals to credit agencies that you are in financial distress.

Myth 1:

You only have one credit score

Do you know how many credit scores you have? In Australia, we actually have three main credit reporting bodies who all provide you with a separate credit score.

Next time you check your score, make sure to request it from Equifax, Experian, and Illion.

Myth 2:

Never having debt means you’ll have a perfect score

Your credit report is kind of like the report card you got in school. You won’t get straight A’s just by not behaving badly. You have to put in the effort to prove that you’re capable of good behaviour.

Your credit score works the same way. If you never take out credit or have debt, the credit reporting agencies have no way to tell if you’re capable of making repayments. When you take out a loan or credit card, it’s an opportunity to showcase responsible repayment behaviour. This can give your credit score a boost.

Myth 3:

Checking your credit score will damage it

There’s a lot of mystery surrounding whether checking your credit score will damage it. To help separate fact from fiction it’s important to know that there are two different types of credit inquiries.

  • A hard inquiry is made by financial institutions when you apply for credit. Each hard inquiry will knock a few points off your score.
  • A soft inquiry can be made by you or another party (eg. a utility provider). This request will not impact your credit score. (ps. you can check your credit report and score for free every three months)

Myth 4:

Your partner’s credit score will affect yours

When you’re in a relationship you share a lot of things. We’re pleased to tell you that your credit score is not one of them. Although your partner’s credit score will not affect yours, if you are planning to take out a loan together, their credit history could impact your ability to get approved.

Myth 5:

You can pay people to fix your score

Is someone claiming to be able to “fix” your credit score? Credit repair services are not an act of witchcraft. Unfortunately, no one can magically make your credit history disappear. While credit repair services may be able to help you create a plan to improve your score over time, there is nothing they can do that you can’t do yourself (for free).

Myth 6:

Shopping around for credit is the best way to get a good deal

If you’re looking for a loan or a credit card, applying for a few to try and find the best deal sounds like a logical plan. This is a trap – don’t fall for it! Every time you apply for a loan the lender will make a hard credit inquiry. When there are multiple inquiries on your credit file in a short space of time, it signals to credit agencies that you are in financial distress. Even if it’s not true, this will be reflected in your credit score.

Myth 7:

If you’re rich you have a good credit score

A common assumption about credit scores is that if you earn a lot of money, you’ll have a good credit score. This couldn’t be further from the truth. Your income has nothing to do with your credit score. Whether you’re a high or low-income earner, as long as you borrow within your means and make all of your repayments, your credit score will be just fine.

Myth 8:

If you have a bad credit score you can’t get a loan

If you have a bad credit score you may feel like it’s impossible to find a loan. We’ve got a treat for you (no tricks – we promise). At Gedda Money, we take a modern approach to lending and don’t use the old-school ways of the past. We don’t waste time worrying about your credit score. Instead, we look at your unique circumstances to create a loan that works for you. Get in touch to find out more.

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