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credit score myths header

Common Misconceptions regarding your Credit Score

Your credit score is an important part of information about you. However, there are many misconceptions surrounding it that makes some people weary, worried and confused when it comes to finding out their credit score.

As a result of this, and to encourage more people to find out their credit score, we are attempting to bust some of the myths. Here are five common misconceptions and the truth behind them.

Your credit score only includes financial/bank products

Many people assume that the only things recorded on your credit score relate to financial and bank products. Credit cards, loans and mortgages all make up some of the information on your credit score but they are not the only things featured on there.

Mobile phone bills and utility bills also make up part of your credit file and any late payments on them will affect your credit score. Although, debts you repay on a monthly basis from a bank or finance provider are important, they aren’t the only thing your financial credibility rests on.

Missing monthly payments to your water supplier will be logged on your credit file. After a certain number of missed or late payments, usually 2 or 3, that is when it starts to take an effect on your financial credibility. If lenders see that you are missing or being late on payments regularly or on a number of occasions, they will see you as a money lending risk.

However, being aware of this information is the vital brick in being able to improve your credit score. If you know, you have missed or been late on a few bill payments then you can make an effort to pay on time from now on. Setting up a standing order for regular bill payments makes sure the money goes out on time to the company you need to pay, as long as you have the money in your account. This kind of stability with your bill paying and finances improves your financial credibility with banks and other lenders.

Being rejected for any sort of credit will be placed on your credit record

If a bank, company or lender searches your credit record, it is placed on your record and will be seen by other lenders who search your record in future. Although, if you are rejected for credit, this will not be recorded on your credit file.

This is something to keep in mind when you are applying for credit that a negative outcome will not be a permanent record on your file. However, if you make multiple applications in a short space on time, due to previous rejections, this can negatively impact your credit rating. This worsening of your credit rating can have an impact on your ability to successfully gain credit in future.

I’ve never borrowed money so my credit report must be perfect

Many people have a good handle on their money, have never been in debt and have never borrowed anything. Many of these people therefore assume that their credit report is perfect and they will have no trouble borrowing money in future for things such as mortgages.

Though never being in debt and always being in a good financial position is a good thing, it can be a worry to some lenders. Due to the lack of borrowing and debt, they don’t therefore know much about you financially. All they know is that you have never been in debt to date.

This lack of information makes lenders, particularly banks, nervous as they want to know as much information as possible about who they are lending money to.

This is a problem that particularly affects young people who have always had a good amount of money in their bank account and are good at living within their means. In order to give lenders more information about you, it could be worth taking out a credit card in this situation.

Taking out a credit card, making some purchases and paying it off in full every month will provide information about your financial attitude for your credit report. This is information lenders will see and can analyse to decide whether to give you a loan or a mortgage in future.

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Checking my credit score is expensive and will damage my chances of getting credit

There are many companies online that offer you the chance to check your credit report. All credit agencies are required to provide you with a one-off copy of your credit report for a small cost, usually £2, by law. However, you can purchase additional products allowing you unlimited viewings of your rating and record online.

Also, be on the lookout for companies that offer your credit score for free. These websites are becoming more and more popular as more people are enquiring about their credit rating. However, make sure you do your research on these sites, as well as the paid for sites, before giving them any personal information about yourself.

My credit score is so bad that it is impossible to improve

Many people assume by damaging their credit record, through missed payments or too much debt, it is impossible to recover and get yourself back to a good credit score. However, that is simply not the case and you can take steps to improve your credit record and financial credibility.

Some of the things you can do to take steps to improve include:

  • Making sure all your payments (bills and debt repayments) are paid in full and on time every month.
  • Focus on trying to pay off some of your debt if possible. If you can pay more than the minimum repayment on your credit card each month, then do it.
  • Cancel credit cards that you have paid off and no long use. They are clearly unnecessary and not having them resists the temptation you may feel to spend on them
  • Check your credit report for any mistakes or anything suspicious. This is rare but can happen and is worth looking out for. If you spot anything like this, highlight it to the relevant company/authority and dispute this. If they find that this is a mistake on your credit report, it should be removed and your credit score should improve as a result.
  • Ask why you have been rejected for credit from lenders. If you cannot see exactly why you are getting rejected on your credit file, ask the lenders. You have a right to know why you have been turned down so make sure you get a reason why. You can use this information to help you improve your credit rating for any future credit applications.

There are many misconceptions surrounding credit reports and much of the information out there can be confusing. What you need to know is: you have a right to know information on your credit report, there are many ways to improve your score if you have bad credit and never borrowing anything is not always necessarily a good thing.

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