There are a number of different myths surrounding credit scores, making it difficult to truly understand what it is you need to know and what you should be doing in order to boost yours.
In this guide we cover the most commonly spoken about myths, and debunk them one by one.
1. There is no such thing as a credit blacklist
The first myth that needs to be debunked is to do with credit blacklists. There is no such thing as a credit blacklist, or a universal credit rating or score. Every lender will score you differently, based on their own independent criteria for approval.
As a result, this means that it isn’t necessarily the case that because one lender has ended up rejecting you for credit, that it automatically all the others will too. However, it would be wise to check your credit report for any potential errors before deciding to apply again if you have recently been declined for an application.
Nevertheless, it is true that if you have a poor credit history, this will increase your chance of being declined for credit in the future, but there are lenders who specialise in providing loans to those with a less than perfect history.
There are short term loans for bad credit available, simply by adding extra security to your application such as a guarantor or securing the loan against a valuable asset such as a home or car.
2. Not everything is on your credit report
Many people get concerned that all of their information appears on their credit reference files, but this isn’t the case.
For example, here are just some of the things that people mistakenly believe is present on their credit report, but are in fact not;
- Council tax arrears
- Parking or driving fines
- PPI, CPP or other recliams
- Criminal record
- Savings accounts
- Whether you have checked your own credit file
- Soft searches (only you see these)
- Medical history
However, one important thing to remember is that if a lender has asked you about something in particular on its application form, this means that they have the ability to then find out about it.
herefore always be truthful when making an application, as lying is fraud and if found out you will almost be certainly declined for credit.
3. Having little credit history is not a good thing
Some people may falsely believe that having not applied for any loans or credit cards in the past will work in their favour, as they will have little credit history.
In fact, it could very well be the opposite. This is because your credit score is a way for lenders to also predict your future behaviour, in terms of how trustworthy you are and therefore how likely you will be able to make back payments promptly. If there is very little information about you on file, then this will decrease your chances of being accepted for credit.
This is commonly the case for young people, who automatically get a credit score when they turn 18.
For credit card providers and lenders, they have very little proof to go on. Hence, it is popular for young people to apply for credit builder cards, giving them the chance to borrow small amounts and get used to making monthly repayments to build up their credit.
4. Everyone gets the same rate for loan
You might think that if your credit score is good enough to then be accepted for a loan, then you will then receive the same interest rate as anyone else approved for the same loan. This has become less and less true over the last ten years.
The credit landscape has changed significantly, meaning that the majority of lenders will now use your credit score to assess not only if you will be approved or declined, but also what rate you will get too.
The same may also apply to other products such as 0% credit cards, where a provider may decide to give you a shorter 0% period based on your credit score. This is another reason why it is vital to do everything you can to manage your creditworthiness.
Above all, it is noted that most providers advertise a ‘representative APR’ but this is actually only available to 51% of accepted customers. The remaining customers may receive anything above or below this advertised rate, but it is really just used as a guideline.
More on business funding
ByteStart is packed with help and tips on all aspects of finance your business. Check out some of our most popular guides;
Funding your business
- Preparing to raise finance for your business – 6 Steps to success
- 5 Ways to unlock finance for your startup
- A Guide to ‘Alternative Finance’ – the new funding options for startups and small businesses
- 6 Things you need to know before launching a crowdfunding campaign for your business
- What is Invoice Finance and how can it help my business?
- A Guide to business credit cards and using them as a short term funding solution
- Improve your cash flow – 7 ways to make sure your business gets paid on time, every time
- 10 late payment excuses used by customers and how to deal with them