20 credit report myths uncovered

20 credit report myths uncovered

author: Adele Kitchen

By Adele Kitchen

There are lots of misconceptions when it comes to credit reports. From what they do and don’t include, to what does and doesn’t affect your credit score.

We sort the facts from the fiction and expose 20 credit score myths, to help you get to grips with your credit report. 

1. Myth - You have one credit score 

Truth - Your credit score varies depending on who is calculating it for you. The three main credit reference agencies in the UK (Experian, Equifax and TransUnion) each use their own scoring methods. This means they have separate scoring systems and different maximum scores. Other credit scoring apps, like CredAbility, generally use metrics from one of the three listed above. When you apply for credit, the lender you’re applying to will also usually work out their own score for you. This score will be linked to their unique lending criteria. See how your score compares to the average in the UK.

2. Myth - Your credit score never changes

Truth - Your score changes in line with your credit history and financial behaviour over time. How well you manage your finances can have a positive or negative impact on your credit score. And, this is constantly changing.

3. Myth - You have to pay for your credit report

Truth - You can check your credit report for free with many providers. You can also request a free copy of your statutory report online directly from each of the UK’s credit reference agencies (you may have to pay a small fee if you’d like a paper copy sent in the post).

4. Myth - Checking your credit score can damage it

Truth - Checking your own credit score does not affect it in any way. When you check your credit report, a ‘soft search’ is performed. These soft searches are only visible to you, so you know exactly who’s looking at your report and when. The searches aren’t visible to lenders or others who may check your credit report, so you can check it yourself as many times as you like.

5. Myth - An eligibility checker will leave a footprint on my credit file

Truth - Eligibility checkers are used to check how likely you are to be accepted for credit, before you apply. As they use soft searches to do this, only you will be able to see the footprint they leave, and they won’t affect your credit score.

6. Myth – Paying off your debts removes them from your credit file

Truth - Records of your debts stay on your credit file for six years after you have paid them off. They don’t disappear as soon as the account is closed. This means that if you have missed payments or defaults, a record of this will be part of your credit history for six years. However, the impact that things like missed payments have on your credit score will lessen over time, especially if you have been able to make all your repayments on time, every time on accounts you’ve used more recently.

7. Myth - People with a bad credit history are registered on a ‘blacklist’ 

Truth - There’s no such thing as a ‘credit blacklist’, for people, addresses, or anything else. When you apply for credit, the lender will look at your individual credit history and financial circumstances and weigh them up against their criteria. And that’s all there is to it.

8. Myth - A good credit score guarantees lenders will give you credit  

Truth - While having a good credit score usually means that you are more likely to be approved for credit, there is never an absolute guarantee that you’ll be accepted by any lender you apply to. A good credit score shows lenders that, based on your previous borrowing behaviour, it’s reasonable to assume you will behave the same with them and repay anything you borrow. But each lender uses their own criteria when deciding whether or not to lend to you. They also take other factors into consideration, such as your individual circumstances and how much you’re able to afford.

9. Myth - A high income equals a high credit score

Truth - Your credit score is calculated based on how you’ve managed previous borrowing. While a higher income may make you more able to manage the money you borrow well, the two don’t necessarily go hand in hand. Your salary isn’t included in your credit report for this reason, and it doesn’t count towards your credit score. Lenders might ask for it when you apply to them, though. It helps them to work out whether the amount you are asking to borrow is affordable for you.

10. Myth - Criminal records and fines show up on your credit report

Truth - Criminal records and fines are not included in your credit report. But, if you have been a victim of fraud or committed a fraudulent activity with a lender, then this may show.

11. Myth - Taking out more credit will reduce my credit score

Truth - When you apply for credit, this will usually cause a ‘hard search’ to be registered on your credit report. Hard searches, unlike soft searches, are visible to lenders and count towards your credit score. So, they can cause your score to dip for a short while after they’re placed, and on a more long-term basis if you have a high number of hard searches filed over a short period.

But, this shouldn’t be seen as a reason to avoid credit if you need it. As you start to repay your borrowing on a new account on time, every time, it’ll contribute to a positive payment history. This will slowly help your score to build back up. It could grow to be better than it was before.

Remember, though, you should only ever borrow what you need, and what you know you can afford to pay back. Having a high amount of credit available to you means you can rack up a lot of debt very quickly if you choose to. If you can’t afford your borrowing and end up missing payments or defaulting on a credit agreement, then this will negatively affect your credit score.

12. Myth - Lenders can see rejected credit applications 

Truth - When you apply for credit, a hard search is carried out on your credit report by the lender. This leaves a footprint on your credit file to show that an application has been made. Lenders won’t be able to see from this whether your application was accepted or rejected. However, lenders can see the accounts you have, and may be able to put two and two together if a hard search that’s been carried out on you doesn’t result in a new account being opened. Lenders may also assume at least some of your credit applications have been rejected if you have a high number of hard searches from applications in a short space of time. This can make you appear desperate for credit and could indicate that you are struggling financially. We always recommend you use an eligibility checker first when looking for credit, so that when you do submit an application, you do so confident that you’ll be approved.

13. Myth - If you’re not applying for a mortgage, then your credit score doesn’t affect you

Truth - Your credit score impacts your eligibility and the amount of choice you have when you use credit in any of its forms, not just with a mortgage.  It plays a part in whether you can access the most competitive rates and deals on all forms of credit - from credit cards to loans, and overdrafts. It can even affect your ability to get a new mobile phone contract.

Find out seven benefits of having a good credit score.

14. Myth - You can’t get credit with a bad credit score

Truth - It can be more difficult and cost you more in interest to get credit when you have a poor credit history. There are lenders that specialise in lending to those with bad credit though, so having a low credit score does not necessarily mean that borrowing is impossible.  

15. Myth - If you have a very low credit score you can’t repair it

Truth - No matter how low your credit score is, you can repair it. There are some simple things you can do today that may help boost your score, like registering to vote online. But for the most part, you’ll need to ensure you make any payments on time and in full, and be patient while keeping up this behaviour month in, month out. Consistently making your payments on time, every time, usually adds up to a positive credit history that improves your score.

16. Myth - If you’ve never been in debt, you will have a good credit score 

Truth - If you’ve never used credit, and so have never been “in debt”, you may find it more difficult to get credit than you think. This is because you may have what’s known as a “thin” credit file – one that doesn’t have much information about you and your use of credit in it. Lenders use your previous financial behaviour to decide how risky it is to lend to you. If you don’t have any credit history at all, lenders won’t be able to tell if you’re a good person to lend to or not and may choose not to take the risk

Find out our four top tips for fixing a thin credit file.

17. Myth - Your savings show on your credit report

Truth - Information about any savings, investments or pensions you have is not recorded on your credit report. Your credit report only covers your use of credit, which is why it includes information about accounts like credit cards and loans, utility bills, and bank accounts that have overdrafts on them (whether you use the overdraft or not), among others. Lenders might ask you about your income and savings as part of the application process, though. Having this information helps them to work out whether you can afford to repay what you borrow from them.

18. Myth - Closing old accounts will increase your credit score

Truth - While closing old accounts that you don’t use can help you stay on top of your finances and reduce your risk of fraud, it won’t necessarily improve your credit score. Closing old accounts can reduce the total amount of credit you have available to you across all your accounts. If you’re using credit on your other accounts, then this means the proportion of your total available credit that you’re using – your credit utilisation – will go up. A high credit utilisation can make lenders think you’re dependent on credit, and reduce your credit score.  Closing old accounts can also reduce the average age of your accounts, which lenders look at as a sign your financial situation is stable. A lower average account age could therefore negatively affect your credit score.

On the other hand, if you keep your old accounts and this means you have a large amount of unused credit available to you, it can put some lenders off. As we mentioned earlier, this is because there’s the potential for you to rack up a lot of debt very easily. This could affect your ability to pay back any new credit you take out, and if you struggle to keep up with the payments, land you in financial difficulty.

19. Myth - Moving in with someone or getting married can affect your credit score 

Truth - Moving in with someone or getting married won’t impact your credit score in itself. But, there are still ways that a big change like this can affect you. First, if you take out joint accounts with your partner or housemate, then this makes you financial associates. If you have a financial associate whose credit history is less-than-perfect, this could affect your ability to get credit. This is because lenders may view their credit history as well when you apply for credit. In particular, they’ll be looking to work out how likely it is that you would have to step in and cover for your associate, and how this would impact your ability to keep up with your own commitments. This is why, when you cut financial ties with somebody, you can apply for a ‘notice of disassociation’, to get any old associates removed from your credit report. You just need to get in touch with the credit reference agencies to request this. 

The second way your credit score can be temporarily affected is if you change your name, which many people do when they get married. Letting all your account providers know you’ve changed name can be a slow process, and it can then take a couple of months for the information to appear in your credit report. While you’re in the process of updating your records everywhere, you may find that some information disappears and reappears in your credit report, and your credit score may not be as high as it usually is while updates are being made. 

20. Myth - Your credit report includes information about previous residents at your address 

Truth - Unless you’ve been jointly named on financial accounts or bills with anyone who lived at your address before you, then information about them will not be included in your credit report and cannot affect your credit score. Your credit report is made up of information about you, not about where you live. Nothing previous residents at your address have done – even if they’ve racked up mountains of debt and had debt collectors knocking on the door – can affect your credit score.

If you have been jointly named on bills or accounts with someone who no longer lives at your address, perhaps because you used to be housemates but they moved out, you will be financially associated with them and their name should appear on your credit report as such. In this situation, if you are no longer linked to them and the account you shared has been closed or their name removed from it, you can request to have them removed from your credit report by contacting the credit reference agencies.

Find out how to improve your credit score with our 12-week step-by-step plan.

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20 credit report myths uncovered 20 credit report myths uncovered