Credit scores and credit reports are very, very confusing. When you’re trying to improve your credit and in the process of applying for financial products, you want to make sure that you’re positioning yourself in the best possible light, and that probably means that you’ll be looking for advice on how to improve your credit. Unfortunately, though, there’s a lot of false information out there, so we’re here to clear up some of the most common myths surrounding credit and credit scores to make the whole process a little bit simpler for you.
Credit Scores and Blacklists Don’t Exist
Although you can pay any of the credit reporting agencies for an average credit score, all the credit score will tell you is what that credit reporting agency thinks of your credit history. Each credit lender will use their own criteria and their own mathematical formula to score you. Therefore, your “score” will differ depending on their criteria and it will differ with every single lender – so you don’t have just one score. One lender might give you the product that you need, while another lender might not. Also, it’s worth noting that blacklists don’t exist. No matter how bad your credit, there isn’t any one list that exists with people on it that have bad credit. Your lender won’t search a credit blacklist to make sure that your name isn’t on it – it simply doesn’t exist.
Lenders Don’t Have to Give You Any Credit
Even if your credit score is flawless and your report excellent, lenders don’t have to give you any credit. Banks will turn down some high quality applicants so that they don’t have to spend lots of money on lots of unprofitable customers. Remember that lenders are not obligated to lend, and so regardless of your circumstance, you might not always get the credit that you’re looking for.
You Might Get Rejected For a Credit Card if You Pay it Off in Full
Although it’s one of the major pieces of advice that we always give to those looking to improve their credit score – apply for a credit card, use it and pay it off in full at the end of every month. But if you’re already doing that, and you apply for another credit card, credit agencies might be unwilling to lend to you – most lenders prefer customers that are always in debt and although this sounds terrible, these customers are the most profitable as they pay the most interest. One way to get accepted for another credit card is to do this – meet the minimum repayments (and more) but don’t pay the cards off in full. Put the rest of the repayments to one side in a high-yield bank account. After about five months, you’ll have shown that you’re a profitable customer – and you can then apply for another credit card. You can then take those savings from the high-yield account to pay the first credit card off. The same might happen if you always use 0% credit cards or if you’re a savvy shopper who consistently shifts their debt to these cards, so it’s always worth keeping in mind that you can be a borrower that has a credit report that can be “too good” for some lenders.
Lenders Score You Based On What You Might Buy in the Future
Some lenders might score you in a completely different way to how you’d expect. Think of it this way. A credit card company wants new executive account customers. You come in and apply for a low-range credit card with high interest rates. Instead of scoring you and processing your application as though you are applying for the low-range credit card (which you are), they’ll score and process you as though you’re applying for a new executive account. That means that you might not get accepted for the low-rate credit card, even though you should have been accepted for it. Unfortunately, there’s not a lot you can do about this – although perhaps you could try applying for money from lenders that don’t offer more than one product.
Student Loans Don’t Count
Student loans might make up a huge quantity of your overall debt, but in general, they don’t count towards your credit report. They tend to be paid through your tax and so that means that you only pay them when you can afford to pay them – and in most cases, this means that your student debt does not show up on your credit report. Go ahead and choose the best course that you can and don’t worry that it’ll impact your credit score.
NB: this differs if you don’t pay your loan back when you’re supposed to or if you default on your loan. Pay back your loan on time and there shouldn’t be any problems.