Have You Fallen For Any Of These Credit Myths?

The world of finance can be a complicated place. It’s rife with myths and misconceptions about how things work. We’re talking the type of thing that sounds just as reasonable, or like what you’d expect, as the truth. So, why would you question it? Read on to find out what some of the biggest credit myths you’ve probably fallen for are, and what the truth is.

1. Credit Reference Agencies decide whether a lender should give you money or not

Imagine it: You apply to a lender for credit, they send off to the Credit Reference Agencies for information about you, and get back a decision as to whether or not they should lend you money. It sounds perfectly reasonable, but it isn’t true.

The facts:

Credit Reference Agencies supply lenders with information from your credit history – the good and the bad – so that they can make their own decision about you. Different lenders want different things from their prospective customers, so it makes sense that they make their own decisions. One might be OK with you having missed a couple of payments a few years ago. Another might consider any blemish on your credit report a total deal breaker. Another again might not lend to you if you already have an account with an outstanding balance with them, or look like you’ve been borrowing a lot recently. Lenders’ criteria are pretty much unique, so it’s always the lender – and not the Credit Reference Agency – who decides whether or not your application is approved.

2. Borrowing small amounts of money isn’t recorded on your credit file

It’s easy to believe that it’s only “big ticket” borrowing that makes it onto your credit report. Stuff like car finance, mortgages, and credit cards – the type of borrowing you have for a long while or on an ongoing basis. In reality though, any kind of borrowing could be recorded on your credit file.

The facts:

Whether or not your borrowing is recorded on your credit file depends on whether your lender reports the status of your account with them to the Credit Reference Agencies – and the majority do. This means that whether you borrow £100 or £100,000, there’ll more than likely be a record of your account with your chosen lender in your credit report. It also means that if you miss a payment, it will be recorded, and the impact to your credit score will be the same whether it’s a £5 payment or £500.

3. People who lived at your address before you affect your credit score

Getting a final notice bill or a court summons for someone who doesn’t live at your address any more, or even having a debt collector knock on the door can, understandably, cause a bit of panic. Not only because someone’s come to your house to talk about money that you don’t owe, but because you probably think that the previous resident having a lot of debt means your address is now on some kind of blacklist that affects your credit score. This is all a myth.

The facts:

Credit blacklists, for people or addresses, don’t exist. Your credit score is tied to you as a person, not to where you live. So, whatever the previous residents at your address got themselves into, it won’t impact your credit score.

4. Checking your credit score yourself will make it go down

One of the most common credit myths out there is that every time you check your own credit score, this gets registered on your credit report and causes your score to drop. Thankfully, it’s not true.

The facts:

It’d be really unfair to punish you for wanting to see your own information. So, when you check your own credit score, it doesn’t have any impact on it. When you check your own credit report, it’s recorded as a “soft” credit check by the company or Credit Reference Agency you’re using to check your score. It gets recorded so you can keep tabs on who’s checking your credit report and when, to make it easier to spot anything dodgy going on. Soft checks are only visible to you, and aren’t part of the credit report that lenders see when you apply for credit. So, they don’t impact your credit score.

5. People you live with affect your credit score

When you live with someone, you likely jointly signed a bunch of legal documents that promised that between you, you’d pay what’s asked of you to remain in the property. But, does being legally tied to someone mean your credit score is influenced by them, too? No, not necessarily.

The facts:

Your credit score is always your own, and isn’t affected by other people. But, if you have joint accounts with the person or people you live with – a joint bank account, credit card, loan, or mortgage – then their name(s) will appear on your credit report as a “financial associate”. The accounts you have jointly could then affect your credit score, depending on whether you make your payments on time. Lenders may also look extra carefully at your joint responsibilities and the other person’s finances to consider how likely the other person is to stop paying their share, and if they did, if you’d be able to cover for them and afford your other obligations at the same time. You could be rejected for credit if a company thinks helping or financially covering for the person you’re associated with means you couldn’t afford your own commitments.

6. You only have one credit score

Many people think of their credit score as this universal number that stalks them around their financial lives, following them from lender to lender and scuppering their plans. But, the truth of it is that although you may feel your credit score is the bane of your life, it’s anything but universal and certainly isn’t stalking you!

The facts

The credit score you get from a Credit Reference Agency, or from a credit report service like CredAbility, is calculated to give you an impression of how good – or otherwise – your credit history looks in the eyes of lenders you might apply to. It can be different depending on who you ask, because different Credit Reference Agencies and reporting services all use different scales and ways of calculating your score. Lenders themselves all have their own unique ways of scoring applicants based on what they look for in a customer, too. So, while it’s good to pay attention to the credit score you see with us or elsewhere, what it means is more important than the number itself. If you’ve checked your credit score with a few different companies and have found them all different, our guide could help you compare.

7. Where you live affects your credit score

A bit like the way your insurance premiums be higher if you live an area with high levels of a certain crime, you might think that where you live has an effect on your credit score. But, it doesn’t.

The facts

Even if you live in an area where a lot of people are struggling with money and have a lot of debt, simply living there won’t impact your credit score. Equally, living in an area where everyone seems well-off doesn’t mean your credit score will get an automatic boost. Your credit score is a reflection of how you manage your finances, not what the trends in your area are.

8. Your job and your income affect your credit score

Your job title and your income don’t get recorded on your credit report, so can’t have an impact on your credit score. But, that doesn’t mean that how much you earn won’t affect your ability to get credit if you apply for it.

The facts

Lenders use your credit report to see how you’ve managed borrowing money in the past. They want to know how much you’ve borrowed, if you repaid it on time, and possibly how much the payments were. When you apply for credit, lenders will usually ask you how much your income is, and potentially for some details of your regular expenses as well. This is because they don’t get it from your credit report, but they need it to work out if you have enough money to repay what you want to borrow. Then, they combine this with what they learn from your credit report, and if it looks like you can afford to repay them and have a good track record of paying what you owe, you should get the green light from them.

9. Once you get married, you have a joint credit score with your spouse

Getting married involves the joining of many things – lives, spirits, finances, sometimes, but not credit scores.

The facts

Whatever your relationship status, you’ll always have your own, individual credit score.

But, if you have joint accounts with your significant other, like a joint credit card, or a mortgage in both your names, then you will become “financial associates”. Financial associates are named on your credit report, and the joint accounts you have will contribute to your credit score. Read back over the facts around how your financial associates can affect your chances of getting credit to see what impact your other half could have. But, remember, your credit score is still yours and yours alone.

10. Your religion, any disabilities you have, or sexual orientation affect your credit score

If you get turned down for credit and you can’t think of an obvious financial reason why, then it might seem logical to you to chalk it up to your religion, your ethnic background, your sexual orientation, or being disabled. But, discriminating like this is actually pretty illegal. So what’s really going on?

The facts

You’ll notice that lenders don’t usually ask you questions like what religion you follow, or what your sexual orientation is. That’s because it has no impact on whether they’ll approve your application or not. Even if a lender thinks people who share your beliefs or lifestyle have a bad reputation for not paying what they owe, it’d be discrimination to tar everyone with the same brush, and so it just doesn’t happen, with credit at least. When you apply for credit, lenders care that you are who you say you are, and that you’ll repay them on time. Anything else is by the bye. If they do ask about anything to do with your lifestyle, it’s likely because they’re making an effort to understand who their customers are, and they should be clear about this in their privacy policy.

11. You can get a high credit score really quickly

We all want a quick fix, don’t we? That easy, five minute miracle cure for all the world’s ills. But, when it comes to credit scores, there’s no such thing.

The facts

A high credit score is something you earn over time by borrowing responsibly and always paying it back as you’ve agreed with your lender. True, there are some things you can do – like correcting mistakes on your credit report and making sure you’re registered on the electoral roll – that could give your credit score a quick boost, but the bulk of it comes from demonstrating you can borrow and pay it back time and again, and there’s no fast-tracking that.

12. If you pay off a debt, it’ll disappear from your credit report

When you finish repaying money you’ve borrowed, then it’s done with, right? And it won’t count towards your credit score any more either? Not quite. When you finish paying off credit, you and your lender are free to part ways. But, even though your dealings with them are over, there’ll still be a record of them on your credit report.

The facts

Lenders you apply to look at your credit history to get a sense of how you typically manage it when you borrow money. If, every time you settled a debt, the record of it ever existing disappeared, they wouldn’t be able to do this, and so would have no idea whether you’re a good person to lend money to, or not. Your credit report contains six years’ worth of your financial history, showing all the accounts you’ve opened, payments made, debts settled and accounts closed, among other things. This gives lenders you apply to a good sense of what kind of borrower you are.

13. Being unemployed affects your credit score

Being out of work for any length of time and for any reason can have a huge impact on your life in many ways, and you might think it could kibosh your credit score, too.  But this isn’t necessarily the case.

The facts

Details of your employment and wages – or lack of – don’t get included in your credit report and so won’t affect your credit score. But, that doesn’t mean that these things don’t count for anything when you want to borrow money.

Lenders will usually ask both what your employment situation is and what you earn when you apply to them. This is because they need to check that you can afford to pay back what you borrow. Knowing you have a job and wages coming in is a good indicator of this. It’s important that you’re honest about it if you don’t have a job or an income, as being lent money you know you can’t really afford to repay will leave you in a more difficult situation than you were in to start with. Lenders will do their best to stop you from borrowing from them if you can’t afford it, but they can only do so much and you can’t blame them if you know you lied!

Of course, if being out of work means you’re not able to keep up with credit payments, then falling behind on your commitments will affect your credit score. So while being unemployed doesn’t affect your credit score by itself, it can have a knock on effect.

If you’re not working and are facing an emergency that you think you need credit for, then there are funds available that you can apply to as an alternative. Reach out to your local council to ask them about their scheme for emergency funding.