The top five credit score myths debunked
Jonathan Such, of vehicle finance company First Response Finance, said for many people, credit scores can be a “stressful aspect of their personal finances”.
“There are many myths surrounding credit scores, and a lot of people have trouble understanding the different credit options available,” he said.
Below, Such sheds light on five common credit score myths:
1) My credit score is impacted by my income
False. How much money you have isn’t taken into consideration by credit scoring models, and your credit reports don’t have your income on them, so your score can’t be impacted.
Credit scores are based only on information found in your credit report. A change in your income can, however, impact your ability to pay your bills – in this case, any unpaid bills would impact your credit score.
2) I must clear debt to repair my bad credit history
False. Even though repaying debt is a good move, making repayments on existing debt is often the best way to improve bad credit.
Missing payments or paying late can be one of the worst things you can do to your credit score.
3) I don’t need to worry about my credit score until I’m older
False. The sooner you establish credit the better. One of the big factors in your credit score is the length of your credit history. You should start worrying about your credit score sooner rather than later. The minimum age to qualify for a credit card in the majority of situations is 18.
4) I’m less likely to be accepted if I have a low credit score
False. Having a low credit score doesn’t necessarily mean your application won’t be accepted.
Service providers and lenders will also consider other factors, such as past account history and affordability. You may just be offered a more limited amount of credit or higher interest rates.
5) My credit score can be helped by closing a credit card
False. Your total available credit is reduced when you close an unused account, resulting in your credit utilisation going up. Your credit utilisation is a ratio that describes what percentage of the credit available to you that you are actually using.
It’s helpful to know that the majority of people with a low credit rating spend an extra £1,170 each year on items of credit than those with a good credit rating.
This could include mobile phone contracts, loans, utility bills, and credit cards. You can improve your credit rating by understanding what’s on your credit file and then spending less over a typical month or year.
Trying to get your head around your credit score can be confusing, but with the help of financial experts, you can gain a better understanding and chance of being accepted for finance. It’s important to remember that credit is a tool, and what matters is how you use it.