Ooooh. My credit score. 😴Yeah, okay, it’s not exactly the most exciting of subjects. But your credit score is a boring thing than can take you to exciting places.
Think of it a bit like saving. Saving isn't fun (at least, it wasn’t until Chip came along 😜) but it can lead to whole lotta fun stuff.
In fact, learning about your credit score is even easier than saving, because all you have to do is read these five fun credit score myth-busters - and you'll be a pro. 😎
Myth 1: You have a credit score
You don’t have a credit score – you have a credit report (also called your credit file). Each lender or bank looks at your credit report and assesses you independently before deciding whether to lend you money. Your credit report includes details of any current accounts, loans, bill payments along with public information such as your name and date of birth. Three main companies in the UK compile credit reports: Experian, Equifax and Callcredit – you can ask any of them for your credit report. They might also give you a ‘score’, which is a rough indication of how you’re doing (but it’s not the be-all and end-all).
Myth 2: If you’ve never borrowed money, you’ll have a great credit score
When you apply for any kind of credit or loan, the lender runs a credit check on you to decide whether to approve you. They run all kinds of calculations to try and predict your future behaviour, based an overall picture of how you’ve used credit recently. If you you’ve never borrowed money before, it can be really hard to get credit because there’s no proof that you can use it properly. That’s why starting early to build up a good credit history is really important (more on that later).
Myth 3: There is a credit ‘blacklist’
Good news: nope!
A low credit score can stop you getting access to credit. Mortgages, car finance, overdrafts, credit cards…they’re all hard to get if your credit score is low. However, the idea that there is some kind of ‘blacklist’ isn’t true. Just because one lender has rejected you, doesn’t mean they all will. They all have different criteria and ways of deciding whether to lend to you. That said, applying for credit leaves a ‘footprint’ on your file, and having lots of footprints can make it even harder to get credit in the future. Instead, use an eligibility calculator like this onebefore applying, to avoid avoidable rejections.
Myth 4: Your credit score is based on every detail of your life ever
The information contained in your credit report is designed to flag up potential warning signs to lenders, such as missed loan repayments or defaults. Most of it only stays on your file for about six years, because lenders only care about your recent behaviour. There are loads things that people think show up on their credit report which in fact don’t – including ‘soft checks’ such as the one we carry out to verify your identity you sign up to Chip. Lenders can’t see your salary, any savings accounts or any student loan debt, and none of these things affect your credit score.
Myth 5: All debt is bad for your credit score
Like we said earlier, borrowing money and paying it back is pretty much the key to a good credit score. So borrowing money isn’t the risky part – paying it back on time is what matters. Never take a payday loan though – the lender might claim that repayments will improve your credit rating, but in reality it’s a big black mark on your credit history. For people just starting out, this might mean getting a credit card for regular purchases and paying it off in full each month. It’s also okay to use an arranged overdraft (and keep saving while you’re using it), as long as you go back into the black on payday.