One of the most important things you can do when it comes to borrowing money is to understand what and when you have to pay it back – and, most importantly, what happens if you don’t. However, there are misunderstandings about what can actually hurt your credit rating and some people even avoid getting into certain situations because they think it will damage their rating. Let’s set a few things straight.
- Your overdraft
- Your income
- Increased or decreased assets
- Utility and phone bills
- Insurance companies
- Small companies or vendors
- More credit cards
- Paying off all of your debts
The bank has agreed to give you this money for free or with a small interest rate if you don’t pay it back by a certain date. Using this money, and even ‘living in your overdraft’ won’t affect your credit rating.
Even if you’re late paying your rent, your credit score won’t budge. Yes, if you don’t pay it for a while your landlord will evict you according to your individual tenancy agreement and you’ll be homeless – but with an impeccable credit rating.
Getting a higher paid job doesn’t mean that you automatically get a better credit rating. If you’ve proved that you don’t pay off your debts on time, your salary won’t change that. Even if your salary goes down, as long as you pay your bills on time, your rating will stick.
If your house goes down in value – or up – or if you (fingers crossed) win the lotto, it won’t change a thing.
Your bad credit rating could have an impact on whether a company decides that you can become a customer or not as they check your credit report. But how you use this service once you have been granted access has no impact on your credit rating. Yes, you can have your phone disconnected for late payments and yes, you can have your gas and electricity cut off, but you can live safe in the knowledge that it won’t affect your score.
Like utility companies, insurance they check your credit rating in order to decide whether or not to give you the insurance. However they don’t actually report any late payments to the credit bureau so they don’t affect your credit rating at all.
Like insurance companies, small companies often don’t report late payments to the credit bureau so it is unlikely that late payments will be noted. If your payments are very late and the account is passed to a collections agency however, the likelihood that it is added to your credit report is greater.
Most people notice their credit score going up when they are a little older but a common misconception is to assume your age is a direct result of this. The fact is, you have probably had more experience with credit, haven’t made the mistakes you did when you were younger and any mistakes you did make, drop off your credit report over time.
Some people believe that getting more credit cards and loans will improve your credit score if you pay them all back on time. Others believe that more credit cards show that you are a bad borrower and will somehow be a setback. Neither of these is true so if you don’t need a credit card, don’t get one and if you do, use it wisely and pay the balance on time.
You may have been late on a few payments and your credit score may have dropped, but a new part time job or budgeting your money better might put you back into a position to pay off any loans completely. However, if you pay off these debts in full, the late payments that were received previously will be visible on your credit report for up to six years. It is possible to chat to the credit bureau or bank and get these late payments wiped from your record but it’s probably best to check with them before you part with your hard earned cash.