12 Credit Score Myths Busted
Recent research from credit reference agency Experian found that a third of Brits (32%) don’t know how to check their credit score. And 50% are unaware of the simple steps that could help them get credit more cheaply.
Your credit score is one of the most valuable assets you possess. It says a lot about you and a healthy score can save you £ thousands on the cost of credit. In the same way, a poor score can cost you £’000s or prevent you from borrowing at all.
Yet for something so critical, there are still countless myths that are bandied about. So here we debunk twelve of the most common ones, to help you have a stronger credit score. ✅
1. Always paying cash will ensure a good credit score
Lenders look at your borrowing history to ascertain how reliable you are when it comes to dealing with money and how risky it might be to lend you money. ?
If there is no history on your credit score because you pay for everything in cash, then it is hard for a lender to determine your ability to pay off debts.
So while paying cash is better than using credit that you can’t afford, proving that you have a long history of responsible credit use is WAY better than not having used any credit at all. ?
2. A bad credit score will haunt me forever
Negative information on your Credit Report, such as insolvency records, repayment information, bankruptcy, etc- will be removed after a set time period. This is usually six years. ⏳
Whilst serious arrears and other negative information might certainly affect your affordability, the impact they have will diminish over time. Especially if your other credit accounts are well maintained.
The good news is once all negative information has been removed, it’s possible for your Credit Score to jump up quite considerably! Yay??
3. Old debts don’t matter
Old credit agreements DO count as they stay on file for around six years. ?
Anyone with a negative mark on their file – such as a missed payment – does have the opportunity to request a ‘notice of correction’ to be put on their file. ?
This is a brief note to explain the negative mark, which remains indefinitely so that lenders have better information about the borrower when considering his credit application. ?
4. I can’t get credit because I’m on a credit blacklist
Experian’s survey found that 75% of Brits believe there is some sort of credit blacklist. ?
There’s no such thing as a credit blacklist, or list with ‘risky borrowers’, which lenders can use. ?
When you apply for credit you will be assessed on the information a lender has on you already (you might be an existing customer), what you put in your application and what it needs to confirm through your credit report.
Another myth around credit reporting concerns address blacklists and being declined if you live in a certain area. Nothing could be further from the truth.
Credit information is based on individuals, not their addresses. ?
5. Having no loans or credit card means a great credit rating
Many Brits believe that if they have never borrowed, it proves they have never needed to be in debt and so should have an excellent Credit Score.
This is (unfortunately) not the case. ?
Without a credit history on which to base a decision, lenders will be reluctant to approve an application, as they don’t have any evidence of how you have maintained your credit agreements in the past.
Since your credit history is the best indicator of your ability to pay, having never used credit will most likely result in a lower Credit Score.
6. The lending decision is made by Credit Reference Agencies
When you apply for credit, a lender will search your details with one or more Credit Reference Agency (CRA) in order to obtain the information held on your Credit Report. Each lender then applies their own lending criteria to the data and (in most cases) uses automated credit scoring to determine whether or not to accept an application.
The decision to lend to you is entirely down to the lender alone; the Credit Reference Agencies only provide the data and have no say in the outcome of your application.
It’s worth remembering that the information held by the Credit Reference Agencies is taken from a number of different sources including lenders, courts and local councils, and CRAs do not ‘create’ any information themselves.
7. Paying a default means it will be removed immediately
Usually, unless you pay within 14 days of receiving a Default Notice, a default will remain on your Credit Report for six years, regardless of whether the full amount has been paid or not.
Although a lender will be able to see that the balance has been paid in full (and as a result you may look slightly more appealing to potential lenders), many lenders see the presence of a default in the first place as reason enough to not offer you credit.
8. Being wealthy will result in a higher score
Credit scores are NOT affected by how much money you have in the bank. ?
All that matters is whether you’re keeping up to date with payments. A wealthy person who doesn’t manage their credit properly will have a worse credit score than someone not so wealthy who do a better job of managing their credit. ?
9. People I live with can affect my own rating
Living with friends and family won’t impact your credit score, so if you live with someone who is having problems with debt, that won’t affect your rating.?
Similarly, previous occupants at your address don’t appear on your credit file or affect your score.?
Someone else’s debt is exactly that: theirs and theirs alone.
Unless, you share some kind of financial product with them – such as a joint bank account – you have a financial connection and their score could affect yours and vice versa.
10. Closing accounts with late payments increases your score
Closing accounts with late payments recorded against you will not increase your score. ?
In fact, even after an account is closed, the negative record will still be visible on your credit report for a period of six years.
However, closing accounts that you no longer use could help an application in another way. ?
Some lenders might be reluctant to grant credit if you hold unused or ‘dormant’ accounts with large credit limits, so by closing those accounts prior to applying, you’re seen as less risky to lend to. ?
11. Checking your report harms your credit score
One common misconception in the UK is that checking your own Credit Report will in some way count against you and damage your Credit Score. The good news is… it doesn’t! ?
It’s true that whenever an organisation searches your Credit Report it leaves a Search Footprint. The Footprint is visible to you and some lenders, but the presence of these markers alone won’t harm your score. ?
Searches can only really harm your Credit Rating if you make many credit applications in a very short timeframe. In fact, most lenders interpret it as a sign of desperation.
You can check your credit report by signing up for free on MortgageLadder.
12. Lenders base their decision solely on your credit score
Your credit score is important, but perhaps not as important as you may think.
What’s even more important is your credit history.
Your credit history can be found on your credit report, which is what lenders usually look at to determine your creditworthiness. Your credit score is only a small part of your history, so if you haven’t already checked your report, be sure to do so.
If you’re looking to buy a home, you can check your credit report for free, as well as get suggestions on how to improve it on a free platform like MortgageLadder.
There you have it! 12 credit myths debunked ✅
Thank you for reading this article. If you found it valuable feel free to share it with a friend, it might help.?
For more tips to fast-track your path to homeownership, ? make sure to download your free copy of the First-Time Homebuyers Guide.
About the Author
CMO. MortgageLadder. Using the art and science behind marketing, I strive to deliver an enhanced brand experience to our users. My background as a data scientist allows me to make data-driven marketing decisions that support business growth. I’m fond of great books, fitness and sweets!