It can be confusing trying to figure out how credit scores work. There’s so much conflicting information, and well-intentioned advice can often be misguided and incorrect. In this post, we’ll set the record straight on 5 of the top credit score myths.
This guide includes:
- Clarification on some of the most widely spread myths around bad credit scores
- How you need some credit / debt in your history for a better credit score
- Steps you can take to improve on a bad credit score
Myth #1: Your property might be blacklisted by credit reference agencies
It makes no difference if the previous occupant at your address was bankrupt or a millionaire. Companies are only interested in your financial details and anyone you’re linked to financially, such as via a joint bank account or mortgage.
Even if they’ve moved without letting lenders know, and there are debt collectors on your doorstep, you are not liable for any of the former resident’s debt and you should not be left out of pocket or unable to take out any form of credit of your own – the law is definitely on your side. In this situation, you need to explain it’s not you they’re looking for – and with proof of ID you’ll be able to demonstrate this.
Myth #2: Your salary affects your credit score
Income is not included in your credit score – although it’s likely to be looked at when applying for most kinds of finance, as part of the application process.
What's included on you credit file?
- Your name
- Date of birth
- Whether you are on the electoral roll at your current address
- How much you currently owe lenders any late payments on existing or past credit card or loan accounts
- Any missed payments on existing or past accounts
- Any County Court Judgments (CCJs) made against you
- Whether your home has been repossessed or you have moved away owing money
- Whether you have been declared bankrupt or entered into an Individual Voluntary Arrangement (IVA).
What's not included on your credit file?
- The amount of money in your current account
- Your salary
- Savings accounts
- Student loans
- Criminal record
- Medical history
- Parking or driving fines
- Council tax arrears
Myth #3: The less you borrow the better
The point of a credit score is that it allows lenders to judge from your previous borrowing habits whether or not you’re too much of a risk to lend to. So if you’ve never borrowed, this gives them less to go on and makes their decision harder – which has an adverse effect on your credit score.
The key is in striking a balance – 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.
Myth #4: Checking your credit file has a negative impact on your credit score
Getting free annual credit reports will not hurt your credit score, and can be an important tool to make sure your information is accurate and up-to-date.
Before you apply for credit, it makes sense to have an idea of what the lender or credit card issuer will see when evaluating your application. Knowing your credit score can keep you from losing points by applying for products you won’t qualify for. Checking will give you an opportunity to quickly identify and fix any inaccurate information. The three credit reference agencies in the UK are Experian, Equifax and TransUnion.
Myth #5: There’s nothing you can do about a bad credit score
It might be hard to know where to start, but improving your credit score is certainly possible. There’s a lot of misleading information out there, and these credit myths discussed can get in the way of improving your score.
A good credit score gives you more options and can make an enormous difference to the amount of interest you’ll pay – so taking these steps are important.
There are some quick wins to be had – and changes you can make immediately to have a positive impact.
- Make sure you’re on the electoral roll – and if you aren’t, then register as soon as possible. It’s not compulsory to vote, but having your details on the electoral roll allows lenders to verify your identity and address easily.
- Dispute any errors online – in days gone by you had to write letters to the credit bureaus if you wanted to dispute errors. Services like Credit Karma let you do it online. Certain factors weigh more heavily on your credit score than others, so pay attention to them first.
- Dispute late payments – for instance, your mortgage lender may report that a payment was late that was paid on time. You can dispute late payments, whether in accounts that are current or accounts that have been closed, the same way you dispute derogatory marks.
There’s loads of help we can offer if you want more advice, you can:
- Visit our Help & Advice page
- Use our Finance Calculator to see what you could get
- Take a look at our cars for sale to see what kind of car you could get within your budget
- Try our Online Chat, where we can answer some more specific questions
- Give us a call today, to see how we can help, you can call us on 0800 197 9758