7 min read

Credit myths: debunked

Ola Rydzewska
3 February 2017

We clarify some of the most common misconceptions about credit scores and reports.

Understanding the world of finance can be confusing at the best of times. And unless you’ve done your research, credit reports and scores can be a bit baffling too.

This isn’t helped by the different rumours which continue to surface about credit scores. Here, we debunk some of the most common myths to help you understand your credit score and report a little better

Myth 1: If you've never been in debt, you'll have a great credit score

Credit scores allow lenders to judge whether you're suitable for credit, using information about your previous borrowing and repayment history. If you’ve never borrowed, or only borrowed a small amount of money, then it’s harder for lenders to judge your habits. This uncertainty can unfavourably affect your credit score, as lenders are likely to assume you're a high risk.

However, borrowing so much money that you won't be able to meet the repayments may also negatively affect your score. This is because lenders may think you’ll struggle to pay back any new debts.

It’s important to strike a balance with borrowing, proving that you can borrow money and then repay it, staying in control of your finances.

Check your credit report and score completely free, as many times as you want

Myth 2: Your credit score will always stay the same

Your credit score will almost certainly change over time. Credit scores are based on your financial repayment history and personal information. So if this changes (e.g. if you take out a new credit card or change addresses) your credit score might do as well.

Having frequent access to your credit score and report puts you in the best position to manage your financial wellbeing. Checking your score regularly means you can keep an eye on the change.

Myth 3: It makes no difference if you pay off your credit card balance in full

Wrong. When you pay your balances in full, you are proving that you can afford your credit, which can have a positive impact on your credit score. Lenders offer the best deals to consumers who have good credit scores and have proved that they can repay their credit.

Myth 4: If you always pay your bills, it doesn't matter how many credit cards you have

Having lots of open credit accounts shows lenders that you have access to a large amount of credit (even if you don’t plan on using it). Lenders like borrowers to live within their means, so if you have multiple lines of credit open it may affect your credit score. At the same time, some lenders may like to see diversity in the number and types of credit accounts you have open.

Having multiple credit accounts open, even ones that you don’t use, can damage your credit score. In this case it’s all about balance – not having too few or too many accounts open at one time.

Myth 5: You'll be put on a credit ‘blacklist' if you have a low credit score

There is no such thing as a credit ‘blacklist’. When you apply for credit, your financial history is taken into account, and decisions are made based on your repayment history and your current levels of money owed.

However, these decisions are not permanent and every financial institution has its own criteria used to determine whether to accept an applicant based on the information in their credit report and their credit score.

Generally speaking, information about your financial history will stay on your credit report for around 6 years.

Myth 6: If you've got lots of money, your credit score will be great

Surprisingly to some, this isn't the case. Information about your savings and assets do not appear on your credit report, and they don't factor into your credit score.

This is because your credit score is not calculated based on wealth, but on how you've handled credit in the past. If you've never borrowed credit before, or you've got a poor credit history, then your credit score could be low, regardless of how much money you have.

Myth 7: A family member’s bankruptcy will your score down

Your credit score assesses you individually. The financial situations of your family (or friends) will not affect your score.

However, if you have a financial connection's could affect your credit worthiness (see below).

Living with someone doesn’t count as a financial connection.

Myth 8: Lenders only care about the applicant's credit history.

This isn't strictly true.

When you apply to borrow credit, a lender may also look at the credit history of your financial connections. (Although financial connections won’t affect your credit score).

A financial connection is anyone you have either applied for credit with or whom you share credit with (e.g.a joint bank account or loan).

You should always keep your financial connections up to date, and request to remove old information with the relevant credit reference agency. (ClearScore customers can do this here. For example, if you're no longer living with your ex, but you're financially linked through a joint mortgage you can contact the credit reference agency to see if they'll consider breaking the link between your credit reports. To do this, you must have been living apart for more than 6 months.

Myth 9: There’s nothing you can do about a poor credit report and score

Every credit agency has different criteria but there are some universal, practical things you can do to improve your credit information. These include registering to vote, making sure all your accounts are registered to the correct addresses, paying bills on time and only keeping and opening lines of credit you need and use open.

You can read our article about boosting your credit score for our top tips.

Checking your credit score and report regularly allows you to take control and manage your financial situation better.

by Ola Rydzewska

Ola studied English Literature and Language at UCL before completing a Master's degree at LSE. As one of our first employees, she really knows her stuff when it comes to personal finance. 

ClearScore exists to make your finances simple.
We offer a free service where you can handle everything to do with credit in one place. In your ClearScore account, you can see your credit score and the full details of your credit report. Your credit cards, mortgages, mobile phone contracts, loans, overdrafts and utilities all on the record. Our goal is to make ClearScore as simple, calm and straightforward as possible. Money is stressful enough.