Your credit score is really important: each time you apply for a form of credit, such as a Credit cards, loan or mortgage, the lender will look at the information contained in it as a way to decide whether to lend to you or not.
If you have a poor credit score you are less likely to be accepted.
There’s a lot of hearsay around the credit scores, so you may be confused about what affects it. We’ve listed some of the most common misconceptions below to help you gain a better understanding.
1. I had debt problems a few years ago, but they don’t count.
False – missed payments, court judgements, IVAs and bankruptcies will show on your credit file for at least six years, and lenders will take them into consideration when you apply for credit.
2. I’ve been blacklisted so I can’t get credit.
False – in the UK there is no such thing as a credit blacklist. However, it’s worth remembering that lenders do check how much credit you have available and won’t lend you more if they think you’ll struggle to keep up with repayments.
3. I’ve never had any form of credit, so I’m a lender’s dream customer.
False – lenders check credit files to see how good you are at paying it back, so if you’ve never had credit, you are seen as being harder to predict.
4. Because I live with my mum and dad, their credit score impacts on mine.
False – unless you have a financial connection with them, their credit score has no impact on yours.
5. I only have one credit file.
False – there are three credit reference agencies, Equifax, Experian and CallCredit, and they all hold credit files on you. Different lenders use different credit reference agencies when looking at your credit history.
6. The credit reference agencies decide whether I can have credit or not.
False – the decision is made by the individual lender, not by the credit reference agency. The credit reference agency just provides information and the lender makes their own decision, bearing in mind how much you want to borrow and whether they think you will be able to keep up with repayments. Every lender will have its own acceptance criteria for products.
7. I can’t change my credit score, so there is no point in checking my credit file.
False – 1 in 3 people who have checked their credit file in the last two years have found mistakes*. The most common mistakes are having incorrect credit products listed, the wrong address and the wrong name for the company or bank that provided the credit. Getting mistakes fixed can boost your credit score, so it could be well worth you spending time looking through your credit file. Find out how to go about this.
8. If I check my credit file too much it’ll look bad
False – lenders will never know how many times you have checked your credit file. So, if you are going to be applying for credit, it may be beneficial to check your file beforehand, so you can try to put any mistakes right and reduce the risk of getting rejected.
However, if you apply for lots of credit within a short space of time, then beware, as it will show on your credit file and impact on your credit score. For this reason, if you are going to be applying for a mortgage in a few months’ time, it might be best to hold off applying for credit cards or personal loans. You don’t want lenders to think you are desperate for cash.
9. I can’t get credit because the person who lived in the house before me went bankrupt.
False – There is no such thing as a blacklisted house. Unless you shared a joint bank account or other financial connection with them, they don’t impact on your credit rating. If you check your credit report and find you are linked to an ex-partner for instance, you can apply for a notice of disassociation.
10. I don’t pay my credit cards off in full because, if I did, it would look bad on my credit file.
False – paying off your credit card balance in full each month is good, as it stops you having to pay interest. It doesn’t damage your credit score because lenders can see that you are reliable when it comes to making payments. Not making your minimum payments however, will have a negative impact.
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