Top 6 Myths About Credit Scores

Top 6 Myths About Credit Scores

The importance of our credit score is something we are all aware of, yet there can be some confusion about exactly what it is and how it is used by lenders.

In this article, we will try and clarify a few misunderstandings and hopefully dispel a few myths at the same time.


1. The blacklist

Let's debunk one myth straight away. There is no such thing as a blacklist. It is a fallacy which has been around for many years but rest assured there is no truth in it. Banks and credit card companies do not have a list of people they won't lend money to.

Lending decisions are made on the basis of your credit score along with other information in your credit file.

2. Clearing your credit card helps your rating

It seems counter intuitive. But, paying off your credit card balance in full every month may not improve your chances of getting a loan.

Whilst it will certainly increase your credit score, banks may reject your application because their ideal customers are those who are always in debt but who always make the minimum payment very month. Not those who completely clear their financial products every month. It can be beneficial to always leave a small balance on your credit cards.

3. Council tax arrears will affect your credit score

Not paying your council tax can lead to all sorts of problems, but it won't affect your credit score. Local councils do not pass data, either good or bad, to the credit reference agencies.

4. We have one credit score

Nope. There are three main credit reference agencies, the best known of which is Experian. Each applies different criteria so calculate your credit score differently.

It is, for this reason, your credit file is so important as it contains other information on which lenders will base their decision.

In essence each lender will calculate their own score or rating to determine whether they extend you credit or not.

They will base this on the information contained in your application along with the credit score and other data supplied by one or more of the credit reference agencies.

5. A good credit score guarantees my loan / mortgage / finance application will be accepted

Sorry, but unfortunately it doesn't. A good credit score is massively important and you should do everything in your power to increase it, but, as mentioned above, lenders don't make their decisions purely on your score.

They take many more factors into consideration, some of which they will only know from your application form, including salary.

It is also worth noting that your credit score will differ between each credit reference agency.

6. The banks know everything about you

Many of us imagine our credit files to be bulging documents and conspiracy theorists will tell you the banks know every little detail about us and our lives.

They really don't, and you may be surprised to know your credit file does not include:

• Council tax arrears

• Spouses credit arrears (unless joint accounts)

• Being previously rejected for credit

• Defaults older than six years

• Bank charges

• Salary

• Balances from savings accounts

Of course, lenders will look at more than just your credit score, they will rate you for risk and assess how much they will charge you for their product. Those they deem more of a risk will pay a higher rate of interest for example.

The importance of your credit score

These myths aside, your credit score is hugely important and has such a bearing on whether you will be able to access credit.

Don't think of your credit score simply in relation to loans and mortgages. It is used to determine applications for credit cards, mobile phone contracts, utility services, and insurance amongst many other things. Including, of course, by landlords when assessing tenants for their properties.


Make sure your credit score is as high as it can be by reading our article 5 tips to improve your credit score https://www.creditladder.co.uk/blog/tips-to-improv.... and take a look at How to check your credit score https://www.creditladder.co.uk/blog/check-your-cre... for more useful information.