8 credit score myths debunked: What you need to know
Confused about credit scores? We separate fact from fiction.
Having a healthy credit score can increase your chances of getting accepted for the best loans, mortgages and credit cards. However, there’s a lot of conflicting information about how credit scores work. So if you’re feeling a tad confused, you certainly aren’t alone.
Here, we clear up some of the most frequently heard myths so you can tell fact from fiction. Many of these are myths that credit reference agency (CRA) Equifax says it encounters from its customers.
Top 8 credit score myths debunked
- Myth #1: I can be put on a credit score blacklist
- Myth #2: The people I live with can affect my credit score
- Myth #3: I only have one credit score
- Myth #4: I can’t get credit with a bad credit score
- Myth #5: Closing a credit card account will help my credit score
- Myth #6: My salary and savings affect my credit score
- Myth #7: My credit score determines if I get credit
- Myth #8: Checking my credit score affects my credit rating
Myth #1: I can be put on a credit score blacklist
Credit score blacklists simply don’t exist. Lenders decide whether to offer you credit by looking at the information in your credit report, as well as other information included on your application form, such as your income. If you’ve had financial problems in the past and been made bankrupt or had a county court judgement (CCJ), your credit application might be turned down or you might be accepted but offered a higher interest rate.
However, there’s no blacklist for either individuals or home addresses. That means if the people who lived in your home before you had bad credit, their financial mistakes won’t be linked to you.
If you’ve been rejected for credit and all the information in your report was correct, you should ask the company why.
Myth #2: The people I live with can affect my credit score
Credit scores belong to the individual, so simply living with someone or even being married to them won’t affect your credit score.
This changes if you open a joint account with someone, such as a joint loan, mortgage or bank account. This creates a financial association between the two of you, and your credit files will be linked. As financial associates appear on your credit report, lenders might consider this when you next make a credit application. If your partner has poor credit, your application could be rejected even if your own credit rating is good.
If you no longer share a joint account with someone, you can ask for a financial disassociation with the 3 credit reference agencies (CRAs) – TransUnion, Experian and Equifax. This ensures the link no longer affects your ability to get credit. You might need to provide proof that your financial connection has come to an end.
Myth #3: I only have one credit score
No one has 1 single credit score. The 3 CRAs all produce their own credit scores and use a slightly different formula to work this out. This means you’ll have a different score with each one.
Each CRA also uses its own rating scale, but with all of them, the higher your credit score, the better. For example, Experian’s rating scale runs from 0 to 999, Equifax’s runs from 0 to 1,000 and TransUnion’s goes from 0 to 710. We have included a simple table showing the different bands below:
|Experian||0 – 560|
561 – 720
721 – 880
881 – 960
961 – 999
|Equifax||0 – 438|
439 – 530
531 – 670
671 – 810
811 – 1,000
|0 – 550|
561 – 565
566 – 603
604 – 627
628 – 710
When deciding whether to let you borrow, lenders look at your overall credit report and use the information contained within it. This can include:
- Your address details, including electoral information from your current address and previous addresses where you’ve lived.
- Your credit history, including how you’ve managed credit agreements in the past, whether you’ve missed payments and your current credit utilisation.
- Public records, such as CCJs, insolvencies and bankruptcies.
- Financial associations.
Most lenders will use this information from all or some CRAs to calculate their own credit score. Additional information from your application form, such as your current employment status and how much you earn, might also be taken into account. This determines whether lenders let you borrow and what interest rate is charged. Because each lender considers different factors when working this out, you could be rejected by one lender but accepted by another.
Myth #4: I can’t get credit with a bad credit score
Having a poor credit score can mean you have fewer credit providers to choose from, but it doesn’t mean you won’t get accepted for credit at all.
However, you might not be able to borrow as much, and the interest charged on that borrowing will usually be much higher than someone with good credit.
Some credit cards, known as credit builder credit cards, are designed specifically for those with poor credit. They typically offer lower credit limits and charge higher interest rates, but if you use them carefully, you should start to see an improvement in your credit score after a few months. Once your credit score has improved significantly, you should be able to apply for more competitive deals.
Myth #5: Closing a credit card account will help my credit score
This isn’t necessarily true. Credit scoring looks at the average age of your credit accounts, so keeping an old account open can work to your advantage.
Closing old accounts does not necessarily improve or lower your credit score. What matters most is how you use your accounts. Making all repayments on time may be seen as a positive indicator.”
What’s more, if you close an old account, you could increase your credit utilisation ratio, and this will actually work against you. Your credit utilisation refers to what percentage of your credit card limit you are currently using. For example, if you had a credit card with a credit limit of £1,000 and used £500 of this, your credit utilisation ratio would be 50%.
Ideally, you want to keep this rate below 30%, as this will be viewed positively by lenders and can help increase your credit score. A high credit utilisation rate, on the other hand, means that you’re using a lot of the credit available to you and can suggest you’re struggling financially. So, the last thing you want to do is to increase it further by closing an account.
Let’s say you had 2 credit cards with a combined credit limit of £2,000, and you were using £500 of this. Your credit utilisation rate would be 25%. But if you closed the credit card you weren’t using, giving you a credit limit of £1,000, your credit utilisation rate would jump to 50%.
Note that if you’re going to keep unused credit card accounts open, it’s important to regularly check your statements for any signs of fraudulent use and resist the temptation to spend on the card again.
Myth #6: My salary and savings affect my credit score
Your credit score is based on historic information about how you manage your credit agreements. This means that information about how much you have in savings or how much you earn won’t be recorded as part of your credit history and won’t affect your credit score.
However, your salary and savings might be taken into account if this is included in your application for credit, and lenders might use this information to help determine your creditworthiness.
Myth #7: My credit score determines if I get credit
The credit score that a lender uses to decide whether to offer you credit will be different from that held by CRAs. According to Equifax, “A lender may use your credit report and other information included in your application to make a decision, but a good Equifax credit score does not necessarily guarantee you will be successful when applying for credit. It simply gives an indication of how lenders might view your application.”
Myth #8: Checking my credit score affects my credit rating
Checking your credit score has no impact on your credit rating, so you can check it as much as you like, knowing that it won’t make any difference to your score.
What will reflect on your credit report are hard searches by other organisations – for example, if you have made an application for credit and a credit search is carried out. Some companies might also carry out security searches when you apply for a new job, and this can also show on your report.
Having a greater understanding of how credit scores work and what can affect them can enable you to take the necessary steps to improve your credit score and increase your chances of getting accepted for the best credit deals in the future.
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