Top 8 Credit Score Myths Debunked
Having a good credit score can significantly improve your chances of being approved for loans, mortgages, and credit cards with favourable terms. However, there is a lot of confusing and contradictory information about how credit scores work, leaving many people uncertain about the facts.
To clarify, we are going to debunk some of the most common myths surrounding credit scores, as frequently addressed by the credit reference agency Equifax.
Myth 1: There’s a credit score blacklist
There is no such thing as a credit score blacklist. Lenders assess your creditworthiness based on your credit report and the details in your application, including your income. While past financial issues like bankruptcy or county court judgments (CCJs) can lead to higher interest rates or rejection, there’s no blacklist for individuals or addresses. If your credit application is denied, ask the lender for the reason.
Myth 2: Your housemates or spouse affect your credit score
Your credit score is individual to you and is not directly affected by those you live with or are married to. However, if you have joint accounts, such as loans or mortgages, your credit files become linked. This could impact your credit applications if your partner has poor credit. To sever this link after closing joint accounts, you can request a financial disassociation from the three CRAs (TransUnion, Experian, and Equifax).
Myth 3: You only have one credit score
You have several credit scores. Each of the three CRAs Experian, Equifax, and TransUnion calculates your score differently, resulting in varying scores. They also use different rating scales, but generally, higher scores are better across all.
Myth 4: Bad credit means no credit
A low credit score limits your options but doesn’t make it impossible to get credit. You may have access to credit builder cards, which are designed for people with poor credit. These typically come with lower limits and higher interest rates but can help improve your score if used responsibly. With an improved score, you can access better credit options.
Myth 5: Closing a credit card will boost your score
Closing a credit card account doesn’t necessarily improve your score and can sometimes hurt it. Credit scores consider the average age of your accounts, so older accounts can be beneficial. Closing an account can also increase your credit utilisation ratio, negatively impacting your score. It’s generally better to keep your credit utilisation below 30%.
Myth 6: Income and savings affect your credit score
Your credit score is based on your credit history, not your income or savings. While these factors can be considered by lenders during the credit application process, they do not directly impact your credit score.
Myth 7: Your credit score alone determines credit approval
Lenders use your credit report and application details to make credit decisions. A high credit score from Equifax or another CRA does not guarantee approval, as lenders have their own criteria.
Myth 8: Checking your own credit score lowers it
Checking your own credit score does not affect your credit rating. You can check it as often as you like without any impact. However, hard search inquiries from lenders or other entities conducting credit checks do appear on your report and can affect your score.
Understanding the realities of how credit scores work and what influences them, you can take steps to improve your credit standing and enhance your chances of being approved for the best credit deals available to you.
