While the fundamentals of credit scores are relatively well-known, the many little things that make up a score remain elusive. Because of this lack of clarity, it is easy for misinformation to spread and myths to persist.
Looking beyond the basic credit score explained guides, this article tackles five credit score myths that need to be dispelled.
Myth 1: Checking your own credit score will lower it
This is perhaps the most pervasive myth, and it comes from a misunderstanding of credit search types. When you access your own credit file via an agency or third-party credit monitoring services, a soft search is performed. Unlike a hard check (which is performed during a loan application, for example), a soft check is not visible to prospective lenders and has no impact on your credit score.
So, does checking your credit score lower it in the UK? The answer is a clear no, and studies suggest that those who check their score frequently are more likely to improve it.
Myth 2: You have one single, universal credit score
For better or worse, the concept of a single, universal credit score is not how things work. In the UK, there are three main Credit Reference Agencies: Experian, Equifax and TransUnion. These agencies independently paint a picture of your financial data and calculate a score using their own algorithms (this is where the lack of clarity stems from). So, your score will vary slightly between agencies.
A lender may pull a report from one or all three. Ultimately, though, all lenders use their own distinct underwriting criteria to make a final lending decision and even a great credit score cannot guarantee approval.
Myth 3: A previous occupant’s debt at your address can affect you
Credit histories are tied to individuals, not addresses. This is a strange myth that exists because a previous tenant’s or homeowner’s financial behaviour has absolutely no bearing on your credit file. The only way another individual’s finances can become linked to yours is via a financial association, such as a formal link via joint bank accounts. The address itself carries no residual financial history.
Myth 4: Having lots of savings will improve your credit score
It is understandable to think that because you feel financially secure with plenty of savings, your credit score should be good. Unfortunately, the two are unrelated, and the credit report is solely a record of your debts and history of paying them off. The agencies don’t have access to your current accounts, ISAs or any other savings, which is why it is often the lenders themselves that ask for these.
This myth may be true in correlation, that indirectly, someone with plenty of savings is unlikely to miss repayments and, therefore, should be more likely to have a good score.
Myth 5: My employer can see my credit score
When applying for a new job, it is not true that potential employers can see your credit score. While they do sometimes check your credit report, it is a very limited version of it. They can see your personal information, like name and address, along with any County Court Judgements and bankruptcies. But they cannot see your actual score, nor is it a hard search that can impact your score.
Next steps
The UK credit score system is far from straightforward, so it is best to focus on credit score facts rather than any “what ifs”. While you may never fully understand the agencies’ algorithms, managing your credit score is achievable with timely repayments and reasonable credit utilisation, along with keeping your details correct.
