Do you even know your credit score? With the new year upon us, it’s time to start keeping track of it, and we bust credit score myths.
"Keep calm and keep your affairs together"
1 MYTH: I’M YOUNG, SO I’M ALL GOOD.
Fact: WRONG! Your age doesn’t matter when calculating a credit score. It’s more in how you manage your credits. Your credit score depends on various factors, such as payment history, credit mix and loan balance, length of credit history, new credit applications and legal track record. Using a credit card and paying the bill in full every month can help you establish a healthy credit score even if you are young.
2 MYTH: IF I AVOID CREDIT CARDS, MY SCORE IS HEALTHY.
Fact: NUH-UH! It’s the other way around. You need credit products to establish your credit score. While living a debt-free life sounds like a good idea, it can actually make it harder to secure a loan when you need to. When creditors look at your debt management, they want to see whether you can make consistent and on-time payments each month, before deciding to issue you the credit or loan you applied for. Having a good credit history is the key to proving the creditors of your ability to manage debt. It’s alright to have debts. If you can pay all your debts on time, it won’t pose a problem to your credit score.
3 MYTH: I DON’T NEED TO CHECK MY CREDIT SCORE.
Fact: Check it like your future depends on it — because it kinda does! Your credit history is an area that can easily impact your credit score, but one that you can quickly improve on. Remember, your credit score will change as you improve on your payments, or get worse if you missed any. You can get a copy of your credit file online for $6.42 at creditbureau.com.sg.
4 MYTH: PAYING OFF A NEGATIVE RECORD MEANS I WIPE THE SLATE CLEAN.
Fact: Your credit report stores credit records for up to 12 months of your credit history. Clearing off a debt does not mean the negative credit records such as late payments are deleted from your credit report, but they will be indicated as “paid” instead. Hence, you should expect the negative record to have some effect until it is no longer shown in your report.
5 MYTH: IF I PAY THINGS ON TIME, I’LL HAVE A SUPER CREDIT SCORE.
Fact: Your payment history only makes up a part of your credit score. There are other factors, like credit utilisation, credit history, legal track record, length of credit history, and if you are using too much of your credit limit. If you charge $9,000 on a card with a $10,000 limit, your score will still reflect that you’re using 90% of your available credit, even if you make your payments promptly. The lower your debt-to-credit ratio is, the better your credit score will be.
6 MYTH: A LOW CREDIT SCORE AFFECTS MY CREDIT FOREVER.
Fact: Your credit score is not permanent and changes according to your credit management. Do what it takes to get a healthy credit record, and you will be offered better rates for your loans. Negative credit records in the past will matter less in time, as long as you are maintaining the higher score. Avoid late payments or maxing out your credit cards. A bad credit score won’t last forever, simply start by managing your credit with discipline and you’ll see your credit score improve over time.
“While living a debt-free life sounds like a good idea, it can actually make it harder to secure a loan when you need to.”