Credit Myths - The truth about Credit

Couple working out their finances

When looking for advice on what things may affect your credit history, there is always the risk of encountering myths. Some of this guidance may be well intentioned or even seem logical, but a lot of the time it can lead to actions that do not help improve your credit history and that can sometimes even make it worse.

If you have never checked your credit score or viewed the information that is held on your credit report, you may be in the dark as to what a credit reference agency or lender will consider when calculating a credit score. Below, we have compiled some of the most common questions about credit scores and credit reports.

What is my overall credit score?

There is no such thing as a universal or overall credit score. Equifax calculates your credit score based on the information held within your credit report, this includes the following information;

  • Address details e.g. electoral roll information for your current address, plus any previous addresses you have lived at.

  • Credit history - this looks at how you have managed your credit agreements in the past, have you paid on time or missed payments. It also looks at your active credit agreements such as loans, credit cards, mobile phone contracts, mortgages and utility services and takes into consideration how much of your available credit you are using, this is known as your credit utilisation.

  • Public records e.g. county court judgements (CCJ’s), bankruptcies or insolvencies.

  • Financial associates - if you have a financial associate – for example, someone you’ve taken out a joint mortgage with – lenders could take their financial behaviour into account when you apply for new credit.

The credit score you get from CRA’s uses the information shown above and is indicative of how a lender will view you when you make an application for credit.The Equifax Credit Report has a traffic light system which helps you see at a glance what areas are good or having a negative impact on your ability to get credit in the future. When you make an application for credit most lenders will use this information from all or some of the CRA’s to calculate their own score, which will also include additional information that you have provided on your application form that is not held in your credit report e.g. how long you have worked with your current employer, whether you work full time or part time and how much you earn. Based on all of this information the lender will then make their decision on whether to approve your application.

Does checking your credit score affect your credit rating?

Checking a credit score, such as your Equifax Credit Score will not change the score itself regardless of how many times you check your own score. Being aware of your credit score and the information contained on your credit report can be a useful way of ensuring all the information is correct and understanding factors that may help improve your score. What will be reflected on your credit report are searches by other organisations e.g. ‘credit searches when you make an application for credit, or security searches, which can happen in some companies when you apply for a new job. Looking up your own score is something completely different.

Am I on a credit blacklist?

There is no such thing as a ‘credit blacklist’. Whenever you apply for credit each individual lender is required to make their lending decisions responsibly using the information on your credit report or details from your credit application. Before you make a credit application it is a good idea to check your credit report to ensure that all the information held within it is correct. If you have done this and been rejected for credit, you should always ask the company why they have made their decision. Be aware that multiple credit applications in a short period of time may be seen negatively by lenders.

Does closing old accounts improve your credit score?

Closing an account won’t necessarily improve or lower a credit score, what is more important is how you use your accounts – e.g. if you make all repayments on time, this may be seen as a positive indicator. If you have applied for a lot of credit cards, it may indicate that you are reliant on credit, which may not be a positive sign for lenders. However, if you have old accounts that you rarely use, but have a good history of repayments, this will be reflected in your credit history.

One other thing to consider is that lenders will look at how much credit you already have available and how much you are using, so if you have a large overall credit limit, this may be seen negatively if you then make an application for more credit.

Does my partner affect my credit score?

Living with someone else or being in a relationship would not affect your Equifax Credit Score or be recorded in your credit report unless you are financially associated with them. Financial associations are created when you apply for a joint credit agreement e.g. a joint mortgage, a joint overdraft, joint loan or guarantor loan and may have an effect on a loan application if the lender uses financial associate data in their score. 

If you have a financial associate recorded on your Equifax Credit Report and you no longer believe this is current, it is important to ensure that any accounts in joint names are closed or settled. You can find out more information about removing financial associates in our FAQs

Can previous tenants affect my credit history?

Your credit history will not be affected by the actions of previous tenants, the only information included is that which relates to you personally. It is also worth checking, however, that the information on your credit report is correct as any fraudulent activity or incorrect information may affect the credit score you are given by a lender or credit reference agency.

Do fines and criminal records affect your credit history?

Neither criminal records nor fines are included in your credit history. What will be included are county court judgements (CCJs) or bankruptcy rulings - which can be taken out by someone you owe money to in the event that you do not repay. These will remain on your credit history for six years after the judgement is passed.

Does salary or savings affect a credit score?

Your credit report and credit score are based on the historic information about how you manage your credit agreements. Information on your salary or on any positive balance in your bank account is not recorded as part of your credit history. Someone with a high income or a lot of savings may still find it hard to get credit if they have a lot of debts.

Your salary or savings may matter when they are included in an application for credit, as they will likely be part of the overall criteria lenders use to decide whether to lend to you. However, they will not affect your Equifax Credit Score.

Does a credit score determine if I get credit?

The credit score that a lender uses will be different from your Equifax Credit Score. A lender may use your credit report and other information that is included on your application to make a decision. A good Equifax Credit Score does not necessarily mean you will always be successful when applying for a loan, credit card or mortgage, but it does give an indication of how lenders might view your application.

Your Equifax Credit Report & Score offers unlimited access free for 30 days and £7.95 a month thereafter. It can help you learn what lenders look for and how they may view your credit worthiness.

This article was updated on 7 January 2021; all information was correct at the time of writing.

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