The numbers game... the nine myths about your credit score
Does your partner's credit history affect yours, and what if you've been refused credit? Vicky Shaw sorts the facts from fiction
Credit scores can be confusing. But it's worth getting to know them better, as they could make all the difference when it comes to applying for deals such as mortgages, car loans and even mobile phone contracts. They can also be crucial when it comes to being offered a better or worse rate on a loan.
Credit report and score provider Noddle.co.uk recently put people's financial skills to the test - and found that the majority (56%) couldn't answer correctly when asked what a credit score is. Millennials particularly struggled, with only 38% getting the question correct.
So, to help set the record straight, here, Noddle's Jacqueline Dewey debunks nine common myths around credit scores and reports...
Myth 1: Checking your credit score hurts it
It's important to understand the difference between soft and hard credit searches. Checking your credit score is a soft credit search. This means that no matter how many times you check your score, it won't have an impact. Hard credit searches do leave a mark, but these are only carried out by lenders when you've applied for credit with them.
Myth 2: You only have one credit score
Your credit score may be different depending on which credit reference agency (CRA) you use - as each have different criteria and methods for calculating a credit score.
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Myth 3: You could end up on a credit blacklist
When you apply for credit, each lender assesses your application differently, so rejection from one doesn't necessarily mean rejection from all. But it is important if you're rejected, not to quickly make multiple credit applications. This can indicate to lenders that you are having problems, which may make them more reluctant to lend to you. And remember that lenders don't make their decision solely from your score - other factors are considered too, such as whether you're likely to be able to afford repayments.
Myth 4: A bad credit score means no credit at all
Just because someone may have a lower-than-average credit score does not mean it's impossible to get access to credit. They may be offered credit at a higher rate of interest though, so it is important to look at ways of improving a credit score, and to shop around before committing.
Myth 5: Your credit history stays with you forever
Financial accounts, credit cards and loans remain on your credit file for six years from the date that they have been settled and closed. This time-frame allows lenders to get a clear understanding of how you've managed your financial commitments in the past. After this time, they are automatically removed.
Myth 6: Your partner's credit history definitely affects your credit score
Being in a relationship or living with someone else doesn't mean they arbitrarily influence your credit rating. But your partner can affect your score - for better or worse - if there is a financial association, such as a joint bank account, mortgage or loan. If you are financially associated with someone else, it will appear on your credit report, which does mean they can affect your score. But if you no longer share finances with this person, you can ask credit reference agencies to remove them from your file.
Myth 7: The less credit, the better your score
This is not necessarily true. Lenders like to make informed decisions. If you have limited or no credit history, then lenders have insufficient financial information about past behaviour to use when making their decision. This may increase your chances of being refused credit. However, that doesn't mean that spending a lot of money on credit is good for your score. It's important to find a healthy balance.
Myth 8: You can't improve your credit score
Nonsense! No matter how bad your credit score, you can always improve it. This could include registering to be on the electoral roll or closing down any unused accounts, for example. But bear in mind, sometimes those improvements take time to be reflected in your score.
Myth 9: A big salary definitely equals a better score
It's more complicated than this. Someone with a high income or savings may still find it hard to get credit if they have a lot of debts or a history of missed payments. However, your salary or savings may form part of the overall criteria lenders use to decide whether to lend to you.