Debunking eight common myths about credit scores
Does having no debt mean you’ll have a perfect credit score? Is there a credit blacklist? Can the people you live with affect your credit score?
In this guide we debunk eight common credit score myths.
Clearing up credit score misconceptions
There are lots of myths and misconceptions around credit scoring, which can make the topic seem confusing. But if you’re looking to borrow money, be accepted for a mortgage, and access the best interest rates, it’s important to understand and manage your credit score well.
Let’s set the record straight and debunk these myths.
Myth 1: I only have one credit score
You don’t just have one credit score in the UK. Three main credit reference agencies – Experian, Equifax, and TransUnion – produce credit scores, and each does it slightly differently.
The agencies use the information they hold about you (on your credit report) when creating your credit scores. Your credit report shows information about you and your financial behaviour, including your repayment history for credit products (like loans, credit cards and mortgages).
Each agency could hold slightly different information about you. This is because while many lenders report to the three main agencies, some only report to one or two. They also all have their own scoring systems and scales:
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Experian scores range between 0-999, with 881-960 being considered ‘good’.
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Equifax scores range between 0-1000, with 531-810 being considered ‘good’.
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TransUnion scores range between 0-710 with 604-627 being considered ‘good’.
So it’s possible you’ll get different scores from each agency. But even with different numbers, your score will probably be within the same ‘range’ with all three agencies (for example if you have a ‘good’ credit score with TransUnion it’s likely you’ll also have a ‘good’ credit score with Experian).
Before applying for credit, you might want to check your score with all three agencies.
Myth 2: Checking my credit score will lower it
Worried that checking your credit score will bring it down? Fear not. When you check your own score, what’s known as a ‘soft search’ is performed, and this has no impact on your score whatsoever (and won’t be visible to lenders).
You can check your own credit report as many times as you like, and this will never harm your score. In fact, it’s generally considered a good idea to regularly review your credit report.
Doing this could lower your chances of being rejected due to errors (if you spot errors on your report and have them removed by disputing them with the agency) and help protect you from identity fraud.
You can check your credit report for free from MSE Credit Club, Experian, Clearscore and Credit Karma.
Myth 3: Having no debt means that I’ll have a perfect credit score
If you’ve never been in debt this doesn’t automatically grant you a perfect credit score. In fact, having little or no credit history can have a negative impact on your ability to borrow.
This is known as having a ‘thin’ credit file or no credit file. If you’re in this situation, lenders may find it difficult to assess how likely you are to repay them (because they haven’t seen evidence of how you manage repayments).
This uncertainty could mean that you’re unable to access credit products (like loans, mortgages and credit cards), or only able to access those with higher interest rates for smaller amounts.
Showing that you can manage credit well, by borrowing and making repayments on time, could help to build up a credit history and boost your credit score. On the other hand, borrowing so much that you can’t meet your repayments will negatively impact your score. Missed payments can be visible on your credit report for six years.
Myth 4: The people I live with affect my credit score
Your credit score is based on your personal financial history and repayment habits. Simply sharing an address with someone won’t affect your credit score. But if you have linked finances with this person, it could affect how ‘creditworthy’ you appear to lenders. This means they could be less likely to lend to you.
If you open a shared financial product with someone else, like a credit card or mortgage, the other person becomes your ‘financial associate’.
This means that lenders may also look at their credit report when deciding whether to lend to you (even if you are applying as an individual). If the person you’re financially linked to has a poor credit score, this could potentially impact your own access to credit.
It is possible to end financial associations. To do this you’d need to close the shared financial products, then contact each credit reference agency (Experian, Equifax and TransUnion) and ask for a financial disassociation.
Myth 5: There’s a credit blacklist
There’s no such thing as a credit blacklist. Lenders look at multiple factors when deciding who to lend to. These can include:
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data from credit reference agencies;
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information that you supply in your application (like your income);
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any history you’ve had with the lender in the past.
Each lender has their own criteria of who they’re comfortable lending to. For example, some lenders may reject applicants with any history of missing repayments.
Other lenders may be prepared to lend to those with lower credit scores, perhaps at a higher interest rate. It may be worth checking your eligibility for a credit product before carrying out a full application. This is because, whether you’re accepted or not, ‘hard searches’ on your credit report can negatively impact your credit score.
Some lenders offer ‘soft searches’ also known as ‘quotation searches’, which means they may be able to check your eligibility and give you a personalised offer, without impacting your credit score.
Myth 6: My credit score is based on my income or wealth
Your credit report does not include information about your income or the amount of savings you have. This means that neither factor into the credit scores generated by the credit reference agencies. Instead, your credit score is primarily based on your repayment history.
So, if you’ve missed repayments in the past, you could have a low credit score, even if you have a high income. Although it doesn’t affect your credit score, lenders may consider your income and any financial commitments when you apply for credit. They do this to make sure you’ll be able to afford the repayments.
Myth 7: A bad credit score can’t be improved
Your credit score is not set in stone. It changes based on your financial behaviour and personal information, so if these change (for example if you change address or take out a new credit product), it will likely be reflected in your score.
Checking your credit report for errors and registering to vote are things you could do relatively quickly to boost your score.
But improving your credit score is a gradual process that will take time. Responsible financial habits, like always making repayments on time, not nearing your credit limits, and making sure your accounts are registered to the correct address, could significantly increase your score over time.
You can read our guide for more details on how to improve your credit score.
Myth 8: Having a low credit score means I can’t get credit
Having a low credit score does not necessarily make it impossible to obtain credit. It might limit your choice of products and rates, but there are likely still options available.
Some lenders offer credit products specifically designed for those with lower credit scores, like credit-building cards. Although these options may have higher interest rates and lower credit limits, they could serve as a starting point for rebuilding credit.
For those with a lower credit score, using credit responsibly could show lenders that you can repay on time each month. This could build creditworthiness over time, boost credit scores and open more opportunities for traditional credit.
