4 Myths or Misconceptions About Online Loans
Published on April 25th, 2019 by CreditFresh
Where do myths come from? Most of the time, they begin with some misinformation or a misunderstanding, and can grow into a widespread misconception.
Most myths have no basis in reality, but the most dangerous myths are rooted in “some” facts. They are harder to dispel because you need to take the time to separate fact from fiction and try to identify where the breakdown in understanding is.
The world of finance and lending are certainly full of myths. Not everyone has a strong understanding of how things work. Or people may even have outdated information, which can easily happen with the relatively quick rate of change in this sector.
Today, we’re going to address and diffuse a few of the most common myths out there today surrounding online loans. These myths may be keeping countless people from getting the help they need when they’re facing financial hardship. Other myths may even hurt your credit score or slow your progress in building it.
Myth #1: Applying Will Hurt Your Credit
This popular myth may be rooted in the idea that all types of lenders will run “some” type of credit check for a loan or a line of credit, which is partially true. However, there is a major difference between what is called a “Hard pull” (or hard credit check) and a “soft pull” (or soft credit check).
What is a Hard Pull?
A lot of people want to avoid the hard credit check because they’ve heard that it can actually decrease your credit score, which is partially true.
However, most of the misconceptions around credit checks come from the fact that most people have lumped all types of credit checks into this category. A credit check is a credit check, is a credit check, right? Not true.
It is true that these hard pulls are often done by lenders when you go to them for a loan or a line of credit application. It is also true that their inquiry will lower your credit score slightly, in the neighborhood of around 5 points or less. It is also true that their inquiry is recorded on your credit report and can stay there for up to 5 years. This is why you have to authorize a company to run one.
However, every single credit check isn’t a knock against your credit score. First of all, FICO will grant you an exception when you’re comparing potential loans from different providers in order to determine which one might suit you best. These types of loans can include:
- A student loan
- An auto loan
- A mortgage
Your FICO score will treat all inquiries (within 45 days) for a mortgage, an auto loan or a student loan as a single credit inquiry, which gives you the opportunity to do a bit of comparison shopping without being punished.
What is a Soft Credit Check?
The soft pull or “soft check” is more of a background check that looks at certain elements of your credit history. You do not have to authorize a company to run one, and there’s a good chance that a company has run one on you without your knowledge.
A soft credit check may be run by a would-be employer, as a means of screening an applicant. Soft pulls are also run by banks and credit card companies to determine whether a customer pre-qualifies for a new offer or card upgrade.
This soft check is not recorded on your credit report, and will not negatively impact your score. In fact, if you check your own credit score, this is considered a soft check. You can do this free of charge once a year, and it’s recommended for people with good and bad credit you take advantage of this opportunity to gain an insight into your current standing.
Some lenders will only run a soft check on your credit, so your credit standing is not hurt by applying. This is the case when you apply for a CreditFresh Line of Credit by CBW Bank online. There is nothing to risk, and your score will not drop.
While it may be true that most lenders will run some type of credit check, they’re not always running the hard check that will hurt your credit rating. It’s important to ask this in advance of applying for any type of financial service, or even a new bank account. Some companies will run a hard check, some will run a soft check and it’s important to know the difference in advance and what you’re agreeing to.
Myth #2: You Can’t Build Credit Without a Credit Card
It can be more difficult to build your credit rating without a credit card, but it's definitely not impossible if you do all the right things.
It is true that credit card companies report your payments (or missed payments) to credit agencies. This means if you’re keeping a low balance and making regular payments, the credit agencies will hear of your good work and reward your credit score accordingly. Conversely, if you’re always near your credit limit or making late payments, your credit score will be punished accordingly.
What if you’re paying all of your other bills on time? Does that get reported to a credit agency? Not always. However, if your account is late and goes into collections, credit agencies will almost certainly be notified. But very few utilities (water, electricity or gas) or telecommunication (TV, cell or internet) companies will report your payments.
This is why a lot of people assume (incorrectly) that you can’t build your credit without a credit card. And this can be a bitter pill to swallow if you’ve got bad credit (or no credit) and can’t get a credit card.
But there are other ways to build your credit score that can make a big difference if you’re strategic and committed to the plan.
How to Build Your Credit Without a Credit Card
If you are unable to build your credit by making credit card payments, you have to find other activities that may be reported to a credit agency.
The first thing you may want to consider is working with a rent reporting service. Your rent payments are not typically reported to credit agencies and less than 1% of FICO credit reports contain rent information. But, for a relatively small charge, these companies will report to credit agencies and let them know that you are making your rent payments on time.
Your rent is more than likely your biggest expense, so why not be rewarded for making these payments on time every month?Some examples of these services include:
- RentTrack: If your landlord is a client, you will pay less. But, without landlord participation, it’s a $6.95 fee per month (Reporting to all the major credit bureaus)
- Rent Reporters: There is an enrollment fee of $94.95 and it’s $9.95 per month (reporting to TransUnion and Equifax)
- Rock the Score: You pay $25.00 to enroll, and $8.95 per month (reporting to TransUnion and Equifax)
- Rental Kharma: It’s $25.00 to sign up and $6.95 per month (reporting to TransUnion)
The second thing you may consider is a CreditFresh Line of Credit by CBW Bank. We report to major credit agencies, so if you’re keeping a low balance and making timely payments, your good work could be reported to these agencies.
Note: Neither of these tactics are a cure-all for damaged credit. They are both solid strategies that may help you build your credit score over time. However, your credit score is a very complex and dynamic number that is based on numerous factors.
It is far easier to damage credit than it is to repair it. Any credit building activity can be nullified if you’re doing things to hurt your credit in other areas. For example, rent reporting will not help you if you’re racking up new debt elsewhere.
Myth #3: You Have to Put Up Collateral
Some people also seem to think that if your lender isn’t running a credit check, they must be asking for something in lieu to protect themselves. And that something must be collateral in the form of your house or your car, right? Not necessarily.
If you’re asked to put up some sort of asset as collateral, you’re likely taking out what is called a secured loan or line of credit. However, if you’re not asked to put up collateral, it’s generally an unsecured loan or line of credit.
Both these types of loans are certainly offered online. But, just because the lending company isn’t performing a hard credit check, doesn’t mean that they need you to put up collateral in case you default on your loan.For example, the CreditFresh Line of Credit is an unsecured line of credit that requires neither a hard credit check, nor any sort of collateral.
Myth #4: All Online Loans are the Same
Through reading the other points, you have already seen how this simply is not true.
Where did this myth come from? It’s hard to say exactly. It’s possible that some people may have had a bad experience with online loans. This has made them jaded, which leads them to lump all loans (and loan companies) together.
The reality is that not all online loans or online lines of credit are the same. Some are simply better than others, and you should never let other people’s isolated incidents cause you to write off an entire market.
For example, the most common complaints about online loans are that they may have a difficult application process, or too much fine print that leads to unexpected fees. A CreditFresh Line of Credit may be a way to avoid either of these things.
The process is simple and transparent:
Step 1: Check Your Eligibility
Begin with answering a few short questions online. We will only run a “soft check,” with no negative impact on your credit score.
Step 2: Accept Your Offer
If eligible, you may choose your credit limit. You may then securely verify your details, and review and sign your agreement.
Step 3: Get Your Funds
The money may be drawn into your bank account as soon as the next business day.
We also take great pride in our service before, during, and after the process. We want to ensure you’re comfortable with, and completely aware of, every detail of your offer. This ensures there are no surprises at any point.
Looking for a Line of Credit Without a Hard Credit Check?
A CreditFresh Line of Credit by CBW may help! As we mentioned above, it can act as a safety net and help you restore your credit with regular payments. Our process is quick, and completely transparent, with no hidden fees.
You may receive a personal line of credit from $500 - $2,500. The application process will not negatively impact your credit report, and you can click here to get started.