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Updated by CreditFresh Loans on Jul 16, 2020
Headline for 4 Myths or Misconceptions About Online Loans
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4 Myths or Misconceptions About Online Loans

The world of finance and lending is 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 Or people may even have outdated information, which can easily happen with a relatively quick rate of change in this sector.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.

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Myth: Applying Will Hurt Your Credit

Myth: Applying Will Hurt Your Credit

This popular myth may be rooted in the myth that all lenders run some type of credit check for a loan or a line of credit, which is true for some lenders, not all. 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).

*Hard Pull: *A lot of people want to avoid a hard credit check because they’ve heard that it may decrease your credit score, which is partially true. It is true that these hard checks are often done by lenders when you go to them for a loan or a line of credit application. It’s also true that a single inquiry may lower your credit score slightly, typically by less than five points. However, every single hard credit check isn’t a knock against your credit score. FICO will grant you an exception if you’re rate shopping.

*Soft Pull: *The soft pull or soft check is more of a background check that looks at certain elements of your credit report. You do not have to authorize a company to run one, and there may be a chance that a company has run one on you without your knowledge. This soft check is not recorded on your credit report and will not impact your score.

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Myth: You Can’t Build Credit History Without a Credit Card

Myth: You Can’t Build Credit History Without a Credit Card

It can be more difficult to build your credit history without a credit card, but it’s definitely not impossible. If you are unable to build your credit history by making credit card payments, you have to find other payment activity that may be reported to a credit agency.

Rent may be 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)
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Myth: You Have to Put Up Collateral

Some people 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.

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Myth: 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 together.

The reality is that not all online loans or online lines of credit are the same. There is variance among them, and you may not want to let other people’s isolated incidents cause you to write off an entire market.

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Disclaimer:

This article provides general information only and does not constitute financial, legal or other professional advice.