Your credit report is one of the most important financial documents today but many of us know so little about it. Despite having major repercussions in your financial life there are a bunch of myths about credit reports circulating that could not be further from the truth.
Closing A Credit Card Account Will Improve My Credit Score
The thing about credit is it has a long memory. In fact, your credit report will remember missed payments or “bad debt” for up to 7 years. This means that any missed payment this year will sit on your record until 2022 – the same year the Football World Cup will be played in Qatar!
Closing a credit card account doesn’t improve your credit score but rather adversely affects your credit to debt ratio. This ratio is essentially how much credit you have been “given” by the bank and a major factor in determining your credit score.
By closing one account with a limit of R10 000 effectively reduce your active credit by that amount and actually make yourself look less financially viable. Instead of closing the account, pay it off and put the card away somewhere safe. It will incur almost no costs and leave you will a healthy credit to debt ratio.
The More Money I Make The Better My Credit Score
This is one of the more popular ones and sadly it is very false. Imagine the scenario: your parents were kind enough to pay for your university fees and you entered the working world with no debt. You went straight into a great job that paid really well and, again, never incurred any debt. Dream scenario? Sadly, more of a nightmare as the person in question would have a very weak credit report.
Without incurring debt and showing the banks that you can handle money responsibly they have no reason to “trust you” when the time comes for you to borrow money. Your salary has zero effect of your credit report.
Having A Bad Credit Report Means I Cannot Get A Loan
While having a bad credit report certainly won’t make life any easier, there are ways to get a loan. Some financial institutions will offer loans to high risk customers who are able to put up some form of collateral to cover the loan. This also works if a family member signs surety on your loan, effectively guaranteeing the loan with their assets.
Other forms of personal loans such as peer to peer lending are also possible, although you will likely incur a higher interest rate because of the perceived risk factor. When it comes to property, systems like Rent2Buy make getting a home loan possible for those with poor credit reports.
This system is where the owner of the property and potential buyer enter into a contract, with the potential buyer renting the property for a time in order to improve their credit score. Once the bank approves the home loan, the contract is fulfilled and the owner is paid in full for the property.
My Spouse Has A Good Credit Score So I Do Too
There are a great many advantages to marriage but sadly a shared credit report is not one of them. Your spouse’s credit score is not linked to yours in any way and cannot improve yours either.
If you choose to buy a house together, both your credit reports will be taken into account when the bank evaluates your affordability. Look after your credit worthiness, even in marriage!
My Race, Age and Gender Affects My Credit Report
To put this plainly - no it does not. Any personal details like race, age or gender do not come into account when your score is calculated. Any lending decision a bank or other financial institution might make will be based purely on how you have handled money in the past and not on what you look like!
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