Busting popular myths about your credit score in 2023

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Bryan Smith - November, 08 2023

5 min read

About the author

Content Manager at Prodigy Finance, helping international students gear up to study abroad

As you grow your income and your responsibilities, you’ll likely eventually want to borrow money to finance the purchase of either assets or your education. To do so, lenders will usually want to evaluate your creditworthiness by requesting to view your credit report and score.

Naturally, there are many myths about credit scores that can become confusing for first-time credit applicants or even seasoned borrowers who have financed multiple assets.

In this article, we’ll round up some popular credit myths to clear up these misconceptions and assist you in building a great credit report.

Do credit scores matter?

Your credit report is a running history of your borrowing behaviour, and is an indication to lenders of how likely you are to both be able to, and will, repay a certain loan.

While there may be arguments that credit scores don’t matter - as certain lenders may base their credit decisions on several other factors to balance their view on your credit worthiness - credit reports remain the most universal and accessible way for lenders to evaluate your credit profile.

It is likely, however, that lenders may supplement their lending decisions with alternative data if you do not have much credit history or if you have a lower credit score. This can include your banking history, other contracts such as insurance policies, your income and expenses, or other relevant information.

Do credit reports contain my salary?

Your credit report does not actually include your salary or remuneration, and isn’t typically used to inform your affordability when you begin a new credit application.

However, your credit report will give indications of how much credit you have applied for, what loan amounts and terms you accepted, and your outstanding balance including interest and fees owed. These figures may be used to give an indicative view of your income or expenses - however, most lenders worldwide will instead ask you to supply your income through bank statements or payslips.

Does checking your credit score lower it?

One of the biggest misconceptions about reviewing your credit report and score is that accessing either will in fact lower it.

However, that isn’t true. Viewing your credit report will not affect your score in any way. In fact, reviewing your report and ensuring that information listed is accurate - and requesting the removal of any incorrect information - may actually cause your score to increase.

While checking your FICO score will not lower it, it’s worthwhile to note that certain loan applications may involve lenders reviewing your report. While a ‘soft’ pull or request will not lower your score, a ‘hard’ or ‘intensive’ review may affect your score, as it will signal to other lenders that you may either be seeking extensive finance or are in financial difficulty.

Does not using a credit card hurt your credit score?

While a credit card is usually the first exposure that many people have to credit, not using your credit card will not impact your credit score.

Ideally, lenders seek to review your credit score and understand your borrowing habits - meaning that applicants who have used their credit facilities and made repayments towards their outstanding balance will usually have a higher credit score than those who have not borrowed at all. Ironically, this means that many borrowers with a higher credit score may be in slightly more debt.

It is essential to note that excessive borrowing and a failure to make repayments can significantly impair your credit score. A general rule of thumb to follow, when accessing credit through a credit card, is to use no more than ⅓ of your total credit limit available and to make timeous repayments wherever possible.

If you have no credit: what is your score?

If you have never applied for credit before, you may be referred to as a ‘thin file’ customer - meaning that credit bureaus do not have sufficient information to create a score for you.

Credit scores of zero do not exist, and most credit scores range from 300-800 depending on the bureau you have used to review your report. Depending on your credit bureau, you are most likely to have a score of around 400 if you have never applied for credit before.

While having a good credit score can be helpful in accessing greater loan amounts and terms, lenders may base their assessments on your credit applications using alternative data if you do not have a sufficient credit history.

When you turn 18, what is your credit score?

While credit scores of zero do not exist, you will not automatically receive a credit score when you turn 18 - and depending on your credit bureau, you will usually only first receive a credit report and score on your first loan application. This may mean you are ‘credit invisible’.

It is for this reason that many credit applicants are first eligible for products such as a credit card instead of other more expensive credit products, such as a home loan or vehicle finance.

Do you need a credit card to get a credit score?

No - you won’t need a credit card to get a credit score. In fact, applications and the issuance of any other credit from any other facility - from a personal loan to vehicle finance - can help in building your credit score.

Credit cards are usually the first line of credit borrowers will receive, as they are usually offered to borrowers from their banks based on their financial history. However, they are not necessary to receive a credit score in the first place.

Is having a zero balance on credit cards bad?

Having a zero balance on your credit card is an indication to your bank, and other lenders, that you are unable to repay what you have borrowed. This can place you in financial jeopardy with the credit provider in question and can negatively impact your credit report.

Making timeous repayments on any loan and maintaining contact with your credit provider - and informing them if you are in financial distress - is essential. In many cases, lenders may offer you a repayment plan to assist in remedying your debt. While this can also negatively affect your credit score, it will enable you to resolve your outstanding debt far more quickly and assist you to remedy your financial situation.

Does paying interest build credit?

Paying interest timeously can naturally help build your credit score, but isn’t necessarily the only factor which can improve your credit score. Any loan application which you sign and make active and timeous repayments towards can help improve your creditworthiness.

Repaying loans with higher interest rates in favour of those with lower interest rates does not necessarily improve your credit score; however, ensuring your debt exposure remains affordable, making regular repayments on all your loan products, and paying off your accounts in good time can build a solid credit history for the future.

What else should I know?

If you’d like to learn more about credit reports, you can explore our in-depth guide which can help you learn more about your credit score, and where you can access it.

You can find answers to all your credit related questions here if you’re applying for a Prodigy Finance loan and have questions about using your credit report during your application.

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