Credit scores are an important part of our finances, but there are several myths about them that many of us believe which simply aren’t true.
Here, we explore some of the biggest credit score myths and expose the truth behind them.
Contents
- There’s a credit blacklist
- The credit scores of people you live with will affect yours
- People who’ve never borrowed before will have the best credit scores
- Your credit history lasts forever
- Having a credit application refused damages your credit score
- Checking your credit report damages your credit score
- Having a higher salary means you have a better credit rating
- Credit reference agencies make lending decisions
- Paying off debts erases them from your credit report
- You only have one credit score
1. There’s a credit blacklist
Nearly three quarters (73%) of people think that creditors have a credit blacklist, according to credit reference agency Experian, but in reality, there’s no such thing. While it’s true that at times, creditors won’t lend to you if your credit score is low, this doesn’t mean you’ll be blacklisted and never be approved for credit again.
Your credit score isn’t something that stays the same throughout your life – it’s actually something that’s constantly changing. Your credit score is essentially a scored overview of your major financial history over the last six years, so what counts towards it and what doesn’t will change over time depending on how you manage your debts.
2. The credit scores of people you live with will affect yours
Many people might be surprised to learn that living with someone doesn’t automatically link your credit ratings.
The only way that living with someone might affect your credit score is if you’re linked financially with them. This will usually mean that you have a shared financial arrangement, often in the form of a joint account, joint credit, such as a mortgage or loan, or if you’ve been issued a joint County Court Judgement.
This is why it’s really important that if you do have a joint account or joint credit with someone, and the arrangement is no longer relevant to your situation, that you close it. For example, if you had a joint account with someone you were living with to pay bills and joint expenses out of and one of you moves out, it’s a good idea to close that account so you are no longer linked.
3. People who’ve never borrowed before will have the best credit scores
This couldn’t be further from the truth, and sadly, it’s often people who have never borrowed money, or who paid off all of their borrowing some time ago that could have some of the lowest scores, or no score at all.
Known in the credit industry as ‘credit invisibles’ or ‘thin files’, these people will struggle to get credit as there isn’t enough information about their credit history to provide an informed rating. It’s something that affects over 5m people across the UK, often young people who haven’t built up credit yet or older people who have repaid their mortgage and other types of borrowing years ago.
The really tricky thing about this is that these people can often find themselves stuck in a vicious circle as no one will lend to them, but because no one will lend to them, they can’t improve their credit rating. If you find yourself in this position, there are a few things you can do that might help, including:
- Making sure you’re on the electoral roll – this helps lenders verify your identity and address history.
- Opening a current account – If you don’t already have one, getting a current account can help add an account to your record and using it effectively could help your score.
- Adding your name to household bills – It’s not uncommon for just one person in each household to have all the bills in their name, but adding your name to them will mean they’ll start appearing on your credit report.
- If you’re renting, ask your credit agency to log this on your report – Unlike a mortgage, which is viewed as a type of debt that you consistently repay, it’s unlikely that your rent will appear on your credit report, unless you’ve asked it to be. The reason for this is that landlords aren’t viewed as creditors, so won’t report your payments to credit reference agencies. Some credit reference agencies, such as Experian, let you choose to have your rent payments counted, which can help improve your score, but of course if you miss a payment, it could negatively affect it too.
- Be patient – It can take a long time to build up your credit report, so don’t panic if you don’t see instant results.
4. Your credit history lasts forever
Many people will be relieved to hear that your credit history does not last forever, rather it usually lasts around six years.
Credit agencies aren’t too interested in things that happened a very long time ago and are much more interested in your current financial situation, so if you missed a credit card payment in 2012, it’s unlikely this will still impact your score.
5. Having a credit application refused damages your credit score
If this were true, it could cause significant damage for a huge number of people, so luckily the truth is that if you’re turned down for a credit card, loan or mortgage, this isn’t noted on your credit report and won’t affect your credit score.
What does show up however, is the number of credit applications you make, and more specifically, applications that involve a hard credit check. If you make a number of applications in quick succession, it might appear to credit agencies that you are in financial difficulty and are trying to get your hands on cash quickly, which can damage your score.
So to avoid unwittingly damaging your credit score, if it’s at all possible, always try and opt for products that offer a soft credit check first, which don’t appear on your credit report, or make applications one at a time and take time to review why your applications aren’t successful. You can have a look at how you can improve your credit score in our article Seven ways to improve your credit score.
6. Checking your credit report damages your credit score
Nope, not even close. Checking your credit report or score has no impact on it whatsoever, and can actually be a really positive thing to do. If you check your report or score frequently you might have a better idea of where you stand, what is making a difference to your score, and whether there are any errors on your report that you might be able to correct.
7. Having a higher salary means you have a better credit rating
Your income doesn’t actually appear on your credit report and therefore doesn’t impact your score in any way. Your credit rating and score are entirely based on what you borrow and how you are repaying it, and not your bigger financial picture, so your income and savings won’t come into it.
In fact, having a higher salary might actually mean that you have less need to borrow money, which means you won’t be building up a credit history, and could possibly have a lower credit score than someone on a lower income who borrows regularly and manages their debts responsibly.
Of course, having a higher salary may have an indirect impact on your credit score. For example, if you are paid well and manage your money efficiently, it’s likely that you’ll have fewer issues in repaying your debts, whereas if you have cash flow issues, you might be more likely to miss a payment or two.
8. Credit reference agencies make lending decisions
Credit reference agencies don’t actually make any decisions or give suggestions to lenders about who they should or shouldn’t lend to. Instead, they simply gather and hold information about your financial behaviours and debt management through your credit report, providing this to lenders when they ask for it. Lenders will then make their own decisions on which products they think you are or are not eligible for, based on their own financial affordability criteria.
This is why it’s possible for one lender to reject your application and another to accept it. If the credit reference agency made the decision, you would likely get the same response from all lenders.
9. Paying off debts erases them from your credit report
Paying off debts won’t erase them from your credit report, and you wouldn’t want it to, as having a record of your ability to repay debt is likely to have a positive impact on your score.
Credit reference agencies build your score based on your financial behaviours, such as whether you make repayments on time, late or miss them entirely, so if you’ve fully paid off a debt, it will show that you are able to manage your debt effectively.
10. You only have one credit score
Credit scores and reports can be issued by any authorised credit reference agency. At the moment, there are around 25 credit reference agencies that are authorised by the Financial Conduct Authority (FCA) to provide credit reports and scores, however, there are three main companies that lenders typically use: Equifax, TransUnion (formerly CallCredit) and Experian.
If you don’t want to pay to access your credit score, ClearScore offers a free credit checking service that accesses Equifax data. They also offer free identity protection that scans for stolen passwords, security problems and fraud defence tips.
Other options include MoneySuperMarket’s Credit Monitor tool, which enables you to check your credit score and report free of charge using data from TransUnion and offers free personalised tips to help it grow. Experian also has a free service that enables you to sign up and check your credit score with them and Totally Money offers a similar service using TransUnion data.
Different credit reference agencies use different criteria to work out your credit score, so it’s fairly normal to find that your credit score changes from one agency to another. If you know you tend to get a better credit rating with a specific reference agency, it might be worth looking for lenders that use that agency when making their lending decisions as you might get a better deal.
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