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24 May 2019

Eight myths around your credit score debunked

Almost nine in ten people believe a 'credit blacklist' exists

Will you end up on a 'credit blacklist' for missing a bill payment? Do lenders judge your street address? Is your student loan dragging down your score? These are just a few of the common questions people have about credit scoring - and you might be surprised by the answers.

Your credit score is vitally important, affecting whether you can take out a mortgage, get a loan or sign a mobile phone contract. Yet a vast majority of Brits have fundamental misunderstandings about how credit scoring works, a new survey from Totally Money found.

Here, Which? debunks some of the mistaken beliefs around the credit scoring process and explains how you can boost your score.

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1. There's a credit blacklist

Almost nine in ten people believe you can end up on a 'credit blacklist', which warns lenders not to give you a loan, the Totally Money survey found.

While credit industry employees may talk about 'blacklisting' people after multiple unsuccessful applications, there's no actual list of those with bad credit. Moreover, there's no single score that all lenders rely on.

In truth, each lender will use its own criteria to assess your application, with your credit score just one of many factors. So while one company may reject you for a credit card, for example, another may accept you.

2.Avoid borrowing to boost your rating

Lenders will look for evidence that you can borrow responsibly, and will pay back what you owe. If you have no record of previous borrowing - whether a mobile phone contract, loan or credit card - this could actually bring down your score.

It could be worth applying for a credit-builder card specifically tailored to boost your credit rating. These typically have lower limits, higher interest rates and fewer benefits than a traditional credit card, but you're more likely to be accepted with a poor or thin credit history.

In the table below, Which? has selected the pick of the credit-builder cards available on the market currently. The links take you through to Money Compare, where you can compare hundreds of credit cards.

Credit cardMinimum/maximum starting credit limitRepresentative APR
Vanquis Chrome 24.7% Credit Card£250 to £1,00024.9%
Tandem Journey Credit Card£150 to £1,20024.9%
Tesco Bank Foundation Clubcard Credit Card£250 to £1,50027.5%

Source: Which? Compare, correct as of May 21, 2019

3. A missed payment stays on your record

You might worry that any missteps will blemish your credit history forever, but most entries in your credit report are removed after a set period of time.

Late or missed repayments and bankruptcies stay on your report for up to six years.

That said, the older an entry, the less it's likely to matter. Lenders are more likely to rely on more recent data, so a missed payment from a few years ago won't necessarily prevent you getting a loan.

4. You don't have to be on the electoral roll

More than half (58%) of those surveyed by Totally Money were unaware the electoral roll affects your credit rating.

In fact, registering on the electoral roll is one of the easiest ways to boost your credit score.

It can also help speed up your application. If a company cannot use the roll to identify you, they may ask for other forms of identity and proof of address, which can slow things down.

5. Your address affects your credit rating

Does living in a nicer area give your credit score a boost? Not at all - but only a quarter of people who responded knew that your street address doesn't affect your score.

Lenders will ask for your address, but mainly to confirm your identity and find your credit file.

What might cause problems is if you have recently moved house and not updated your details with the credit reference agency. It's also possible that some lenders may be wary if you've moved house several times in a short space of time.

6. Criminal offences harm credit rating

Only one fifth (20%) of people realise that a criminal record won't affect your credit score or appear in your history. By contrast, a County Court Judgement (CCJ) or filing for bankruptcy will bring down your score significantly.

That said, lenders are allowed to ask you about unspent convictions, and are likely to factor this into their decision-making process.

7. Your partner's finances affect your score

This one is a little trickier. Lenders won't look into your partner's credit history merely because you're married or living together.

However, if you have a financial connection with someone, like a joint account or joint mortgage, lenders may look at that person's report when judging your application for a new loan.

This can be true even if you're not in a relationship - for example, if you have a joint account with your housemates for bills. So think carefully before opening joint financial products, and make sure you close them down once you no longer need them.

8. Unpaid student loans can cause problems

Just over a quarter of people (20%) correctly recognised that student loans won't appear in your credit file. These loans are paid through salary deductions, and only collected if you earn over a certain threshold.

That said, any credit cards or overdrafts you took out to support your student days will show on your credit report.

9. Credit reference agencies decide who gets credit

Nearly one in three respondents (31%) believe it's the credit reference agencies that decide whether someone's application is accepted or declined. But actually, credit agencies don't make the decisions.

A credit reference agency is essentially a huge data library which pulls information from lenders and public bodies to build a person's credit report. This information is then provided to lenders, banks or other financial services providers, who decide whether to lend to you or not.

Every lender has its own criteria for deciding applications, taking into account your credit score but also your employment, income and personal circumstances.

How to check your credit score

There are three major credit reference agencies - Experian, Equifax and TransUnion (formerly CallCredit) - all of which allow you tocheck your report for free. You should check the information on all three reports at least once a year, because mistakes and incorrect details can bring down your score.

Make sure your personal details are up-to-date, including your address. You should also check whether lenders have supplied the correct information about payments and credit applications. Unfamiliar entries, such as credit card applications you didn't make, may indicate attempted fraud.

If you spot a mistake, you contact the credit reference agency to correct it. It has 28 days to make a decision. If no action is taken, you can submit what's called a 'notice of correction' on your file, highlighting any mitigating circumstances, or contact the Information Commissioner's Office (ICO) to complain.