Credit reports and scores are an integral part of our lives. They started to matter when banks created a system to determine the creditworthiness of everyone. That’s why it is important to understand credit as a borrower. It determines how easily you can get an auto loan or any other form of loan you’re interested in. when you don’t understand how credit works, it is easy to believe the misconceptions about credit and its impact on lenders. That’s why we’ve taken out the time to clear up some misconceptions so you can understand credit better.
There Is Just A Single Credit Score
This statement is a common misconception and should be completely gotten rid of. There are different models used in determining credit ratings. Most lenders make use of FICO, and the score range goes from 300 to 850. When your score is high, so are your chances of getting that auto loan. That is why getting your score before applying for a loan is essential. It gives you an idea of what the lender will see. However, it is noteworthy that your points may vary by some points from different companies.
Checking Your Credit Hurts Your Score
This statement is a misconception that is both true and false. These days, lenders are not the only ones that are interested in seeing your credit report. Landlords, employers, and insurance companies also take a look at your credit ratings to make decisions. However, until you apply for a loan, most companies only carry out a soft inquiry, which does not affect your score. However, lenders often carry out hard inquiries, which reduces your credit score by just a few points.
My Bills Are Paid On Time and Should Affect My Credit Score
Although payment history is an essential factor in determining your credit score, it is only 35% of your score. The balance you owed, the amount borrowed, and your credit limit makes up 30% of your credit score. This calculation means that if your payment history is top-notch, but your credit limit is close to its limit, your credit score might be lower than you think. The payment history reflected has to do with lending debts and not maintenance bills. They do not reflect and cannot help your credit card.
I Need A Balance on Credit Card For My Credit Score To Go Up
Credit utilization is the amount you owe on credit cards versus the limits on them. The best thing you can do is keep your credit utilization under 30%. Any time your balance is lower than this level or at this level, your credit score is boosted. However, when it is above 50%, you will damage your credit score. Do not carry balances unless there is an absolute need. If you don’t pay your credit card in full every month, you’re paying unnecessary interest. A balance under 30% credit utilization will significantly improve your credit score.
I’ll Get Approved Because My Credit Score Is High.
Whether it’s an auto loan or any other type of loan, simply having a high credit score is not enough to get you approved. Lenders also check your income level and any new credit you might have opened or managed recently. Even if you find out your credit score is pretty high, you may not be approved for the auto loan if you also have a high debt level. The type of loan you’re looking to collect also determines if you will be approved. An auto loan or mortgage is a secured loan, and it easy for lenders to approve such loans, but unsecured loans are more challenging to obtain.