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: 'I’ve only ever borrowed small amounts, so my score will be good'
Credit scores allow lenders to judge whether you are 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.
However, borrowing so much money that you will not 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.
Myth 2: 'My 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: 'There’s no point in me paying off a 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: 'I’ve got several credit cards but I always pay my bills so this won’t affect my score'
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.
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 the products you’re offered. At the same time, some lenders may like to see diversity in the number and types of credit accounts you have open.
Myth 5: 'My low credit score means I’ll be put on a credit ‘blacklist’'
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: 'I’ve never borrowed before, so my score must be great'
If you have never borrowed credit before then it’s difficult for lenders to assess how reliable you are. This can negatively affect your score and consequently the financial products you’re offered.
Myth 7: 'A family member’s bankruptcy will bring my own 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 with someone (such as a joint bank account or loan, this will appear on your credit report. This won’t affect your credit score, but when you apply to borrow money, a lender may also look at the credit history of your financial connections, and it could affect whether or not they decide to lend to you.
Living with someone doesn’t count as a financial connection.
Myth 8: 'My ex’s debt problems will have no effect on my credit report'
A financial connection like a joint mortgage or bank account will mean that your credit reports and scores are linked in the eyes of lenders, even if you are no longer together. If the only remaining financial link between you is the joint mortgage and you have been living apart for six months or more, you can request credit reference agencies to consider breaking the link between your credit reports.
Myth 9: 'There’s nothing I 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 10 tips.
Having free and easy access to your credit score and report allows you to take control and manage your financial situation better. ClearScore is working hard to ensure that everyone in the UK can take control of their credit report and score and protect their financial wellbeing.