There are countless myths and misconceptions surrounding debt and credit - and it’s easy to get lost in them when trying to rebuild your credit score.
Since the pandemic began, the number of people checking their credit score has increased by almost a third - says TransUnion. As the cost of living continues to rise, money management and financial awareness are more important than ever. It’s time to be proactive in monitoring your credit score so you can protect and improve your financial well-being. A few simple steps could boost your score and open up a whole new world of possibilities.
Loan sharks or high-interest lenders can lead to spiralling debt and a plummeting credit score. However - borrowing from a responsible lender, like Fair for You, can help to improve your credit score and your financial well-being. We run a quick eligibility check to make sure you can afford a loan with us, and if accepted - you can choose a repayment plan that works for you. Our checks do look at your credit score, but we use more than this to assess whether a loan is affordable for you. Using the latest tools like Open Banking, we can quickly and fairly make a decision that's best for you. Whether in weekly, fortnightly, four-weekly or monthly payments, we ensure our fair and flexible loans help you and your finances.
But wait, what is a good credit score?
Before we launch into the myths around credit scores, we need to understand what a good credit score looks like.
Equifax says:
“Higher credit scores mean you have demonstrated responsible credit behaviour in the past, which may make potential lenders and creditors more confident when evaluating a request for credit. Lenders generally see those with credit scores 670 and up as acceptable or lower-risk borrowers.”
Here at Fair for You, we don’t base our entire application decision on your credit score - as many other lenders do. Instead, we take it into consideration along with multiple other factors to get the most accurate overview of your financial situation. That’s one of the many reasons why it’s important to stay on top of your credit score - and to make improvements where you can.
In this blog post, we will address some of the most popular credit score misconceptions and the truth behind them.
Please be aware that the content of this blog is not intended to constitute personal financial advice, and the views expressed in it are those of the contributor or author, which may not necessarily represent or reflect the views expressed by Fair for You Enterprise CIC. You can visit the Citizens Advice and Money Helper websites for free and impartial help with your money.
#1 A good credit score means you’re ‘rich’
A lot of people believe that if you have a good credit score, you must have a lot of money. This couldn't be further from the truth! Having a good credit score simply means that you're financially responsible and have been managing your money well. It has nothing to do with how much money you make or have in the bank. Anyone can have a great credit score, regardless of their income.
#2 Checking your report will hurt your score
One common misconception about credit reports is that checking your own report will somehow hurt your credit score. This simply isn't true- in fact, checking your credit report on a regular basis is one of the best ways to stay on top of your credit health.
Your credit score is based on a number of factors, including your payment history, credit utilisation, and the types of credit you have. Checking your credit report is a good way to catch any errors or inaccuracies that could be dragging down your score. If you do find anything that looks incorrect, you can dispute it with the credit bureau and have it corrected.
So don't be afraid to check your credit report regularly - it's one of the best ways to stay on top of your credit health!
#3 A high credit score doesn’t really matter
A lot of people think that a high credit score doesn't really matter. They figure that as long as they make their payments on time, they'll be fine. However, this isn't the case. A high credit score can save you a lot of money in the long run.
For example, let's say you want to take out a loan for a new car. You’ll probably be offered a lower interest rate if you have a higher credit score. This can save you hundreds, or even thousands, of pounds over the life of the loan.
A high credit score can also help you get approved for a mortgage or rent an apartment. Landlords and lenders often look at credit scores when making decisions about who to approve. So, if you have a high score, you're more likely to get approved for the home or apartment you want.
If you're not sure what your score is, you can check it for free on websites like Experian and Clear Score.
#4 Paying off debt increases your credit score
While it's true that paying off debt can have a positive impact on your score, there are other factors that come into play as well. For example, the amount of debt you have and the length of your credit history are also important considerations. So if you're looking to give your score a boost, focus on paying down your debt and maintaining a good credit history.
#5 My partner’s credit score impacts mine
Your credit score is based on your individual credit history and borrowing habits - not your partner's. Therefore, even if you are married or have a joint account with someone, their credit score will not affect yours. However - when you’re looking to make bigger purchases, like property, lenders might look at the credit score of your partner if you’re married.
#6 Debit cards help build a good score
Debit cards are often seen as a way to help people build credit, but this is actually a common misconception. Debit cards don't report to credit agencies, so they can't help you improve your credit score. Using a debit card can actually hurt your score if you're not careful. When you use a debit card, the money is immediately taken out of your account. This can lead to overdraft fees, which will damage your score. It's important to remember that debit cards are not a substitute for credit cards. If you're trying to improve your credit score, you could, for example, use a credit card and pay off your balance in full each month, to show the credit agencies you’re a responsible borrower.
#8 My employer can see my credit score
Credit scores are only seen by lenders and other financial institutions when you apply for a loan or credit card. So, you can rest assured that employers cannot access your credit score information without your permission.
#9 Student loans don’t impact my credit score
There's a misconception that student loans don't impact your credit score. That's not true! Student loans can actually have a major impact on your credit score, depending on how you manage them.
If you make your student loan payments on time every time, it will reflect positively on your credit score. However, if you miss a payment or make a late payment, it will have a negative impact on your credit score.
#10 Closing a credit card improves my credit score
When you close a credit card, the issuer will report the account as closed to the credit bureaus. This can cause your credit score to drop because you now have one less line of credit - lenders usually like to see that you’ve got low ‘credit utilisation’, meaning you’re not maxing out the credit available to you and have stayed on top of payments.
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