Credit scoring can feel like a dark art, but here we separate the fact from the fiction.
One of the biggest factors that lenders, be they banks or credit card companies, use to determine whether they accept your application or not is down to the strength of your credit score.
If you’re worried about changes to your income due to the coronavirus crisis, and how it may affect your credit score, take a look at our FAQs.
While many of us might be aware we have a score, a lot fewer of us really understand how it works.
So, to help put your mind at ease, here are six of the most common credit score myths – busted!
1. Your address could be ‘blacklisted’
It doesn’t matter if the previous occupant was a prince or a pauper, your credit score is a personal record and so you will not find any evidence of them on your credit report – unless, that is, you share a financial connection with them, which leads nicely on to…
2. If your partner – or spouse, even – has a bad score, your score will also suffer
A credit score is specific to you and only features information on your lending history.
The only way someone else’s credit history can affect you is if you have a financial connection with them – a joint mortgage or credit card, for instance. Then lenders may look at their credit report in addition to yours as their financial situation could affect your ability to repay.
Living with someone, or even being married to them, does not – by itself – create a financial connection.
3. The less you borrow, the better your score
The whole point of a credit score is that it allows lenders to judge from your previous borrowing and repayment habits whether or not you’re too much of a risk to lend to. So if you’ve never borrowed, or only borrowed very little, this gives them less to go on and makes their decision harder – which has an adverse effect on your credit score.
You need to strike a balance though – each of us has a limit on the amount we can borrow and so maxing yourself out with loans, credit cards and overdrafts may have an adverse effect on your score.
4. You can’t get a credit card with a bad score
Although lenders keep the best deals for those with good credit scores, having a poor credit score might not necessarily mean you can’t get a credit card.
What it does mean, though, is you’ll be offered credit at a higher rate of interest which, if you start racking up interest on your borrowing, can lead to greater debt problems and an even poorer credit score.
That said, taking out a bad credit credit card can be a great way to improve your credit score.
5. Credit reference agencies all use the same scoring system
One of the biggest causes of credit score confusion is the fact there is more than one credit referencing agency – and they can all hold different scores for you.
Not all lenders use the same agency when running their checks, so rejection by one may not necessarily mean rejection by another.
6. You need to sign up with an agency to get your credit score
It used to be commonplace that you would have to take out an expensive subscription directly with a credit reference agency in order to view monthly updates to your score. However, free access to your report is now more widely available.
Credit Monitor lets you check your score for free, plus you’ll get free, personalised tips to help you improve your score. A better score means you’re more likely to have access to a wider range of credit card deals, so you’ll have more options to choose from.
We’ll also keep an eye on your credit file and let you know about any activity that could be suspicious, so you can act on it quickly and make sure your score isn’t negatively impacted.
Alternatively, you can obtain a statutory report directly from any of the credit referencing agencies for around £2.