The credit myths that are holding your score back

Credit scores show you how likely you are to be accepted for credit. They’re calculated using information about how you’ve handled debt in the past, for example, what credit you’ve had and how you’ve paid it back.

But there are a number of common myths about the world of credit and credit scoring that could be stopping your score from improving.

Myth 1: “Using credit is always a bad idea”

Essentially, credit lets you spend money that isn’t yours on the basis that you will pay it back later, usually with interest added on top.

If you manage credit responsibly – always paying your bills on time and not spending above your means - credit can have some advantages:

1. Credit can help you deal with temporary cash flow problems or if there’s an emergency

If something crops up the week before payday – a broken boiler or an unexpected bill – then using credit, for example paying via credit card, may be able to tide you over until you do get paid.

However, make sure you don’t rely on credit to pay your bills. Remember, you will have to pay the money back eventually (and with interest on top).

2. Credit lets you spread the cost of expensive items

Buying something, whether that's a sofa or a washing machine, and paying for it in instalments is technically using credit. If you’d find it tricky to pay the cost up front, spreading the cost over several months can be more manageable (just remember you’ll also have to pay interest on top).

Credit can even help you spread the cost of a house. Most of us would find it pretty impossible to buy a house outright, so that’s where a mortgage can come in. After paying a deposit on your house, a mortgage – which is a loan used to buy a property – can be used to cover the rest.

While borrowing is normal and necessary for most people, taking on too much debt can become stressful and put you at risk. If you’re worried about your debt levels, take a moment to read our article about this subject here.

3. Using credit can help improve your credit score

Using credit regularly and responsibly is a key element to building your score. By spending little and often, and paying your bills each month, it shows you can reliably pay back the money you borrow.

Myth 2: “Everyone has a credit report and a credit score”

You don’t automatically get a credit score the day you turn 18. In order to have a credit score you must have a credit report. And to have a credit report, you must have credit history.

Your credit history starts when a credit provider reports information about you to one of the UK’s three credit reference agencies - Experian, Equifax and CallCredit. So, if you’ve never used credit in the UK, you won’t have a history. Which means no credit report and no credit score.

Typically, this happens if:

• You’re new to the UK
• You've never had a credit account in your name
• You’re under 18

Myth 3: "I used credit when I was younger so I must have a report"

If you haven’t been active with credit for a while, then it is possible that you won’t have a report anymore.

Information tends to stay on your credit report for around 6 years. If you’ve ever defaulted on a debt, been issued with a county court judgement, or been declared bankrupt, then this will be visible on your credit report for 6 years. After this time, this information will drop off your report.

Any closed credit accounts will also remain on your credit report for 6 years. However, after 6 years, these accounts will no longer appear. So, if you close all your credit accounts and don’t open any new ones, you may eventually not have a credit score anymore.

Typically, this happens to people who leave the UK and settle down elsewhere. If this sounds like you, you can check whether there’s still anything on your credit report using your last known UK address. Unfortunately, if nothing comes up, you’ll need to rebuild your credit history from scratch.

Myth 4: “No credit score, a credit score of zero – it’s all the same”

Having no credit score and having a score of zero are actually two different things.

If there are no financial records about you then you won’t have a score at all. It’s a bit like being invisible (but only in the credit scoring world).

Having a credit score of zero tells a different story. Firstly, a score of zero is still a credit score, meaning you have a credit report. Typically, scores at this end of the spectrum tend to be a result of previous credit difficulties, rather than a lack of credit history.

If you don't have a credit score, it doesn't mean that your very first score will start at zero either. Because you haven’t done anything to actively damage your score, when you do get a score it won’t necessarily be right at the bottom of the ladder.

Myth 5: “If I ever need credit it’ll be easy to boost my score quickly”

Maybe you don’t want credit now, there’s nothing wrong with that. But if there’s one thing that’s certain, it’s that life tends to throw up some unpredictable changes.

While you may not need credit now, you might want it in the future. Maybe you’ll want a mortgage or a loan for a wedding.

To get accepted for these credit products you’re going to need a credit score.

But you can’t just boost your score overnight, they can take a while to build up. If you're starting off with no score, you’ve got to build up enough credit history for there to be a record of you. And even after that it could take some time before there is enough data for credit reference agencies and lenders to make the calculations that create your credit score. If you're looking to improve your score, this can also take a bit of time. Lenders often prefer to see a pattern of reliable behaviour over time.

So taking steps to boost your credit score now, when you don’t have an immediate need for credit, can help set you up for whatever comes your way in the future.