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16 Mar 2020

From credit blacklists to the source of credit rejections: five credit report myths busted

Find out what you need to know to get approved for a loan, credit card or mortgage

Half of the general public don't know what simple steps could help them get credit more cheaply, according to research for credit reference agency Experian.

To arm people with credit scoring know-how, Experian will launch its Credit Awareness Week today (16 March) for the fourth year running.

Here, Which? looks at the credit report and credit score myths that are holding people back.

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1. Your credit report doesn't need to be checked

Research conducted this February by YouGov for Experian found that half of the general publichave never checked their credit report, with this figure rising to two thirds of 18 to 24-year-olds.

Not regularly checking your credit report could mean errors could go uncorrected. In 2019, we found that one in five people who did check their report found they were wrong.

If you see any mistakes on your credit report, you should contact the credit reference agency to get them corrected.

2. Your credit score has to take a hit

Half of those surveyed had never checked their chances of getting a deal before they apply for credit through an eligibility checker. Over-55s were the least likely to have protected their credit scores with eligibility checkers - just 15% of them have ever used such checks.

An eligibility checker will conduct a 'soft search' to rate your chances of being accepted for borrowing or credit. It indicates your chances of securing the credit limit you want and whether you'll be offered it at the advertised rate or a higher one.

Soft searches don't leave any trace on your credit history unlike the 'hard searches' conducted when you apply. If you do a hard search and are rejected, this refusal can impact your credit score and shut down other deals that could otherwise have been available.

Where you can, it's worth using an eligibility checker or taking a closer look at what would make you eligible for a deal. Some credit cards, for example, are only available to people that have a certain income level.

Use of online eligibility checkers has rapidly gained in popularity recently, but there are still some major lenders and credit card providers that don't provide these pre-application tools. Our best and worst credit card brand pages can let you know which providers offer an eligibility check.

3. You don't need to know your credit score

Nearly three in four people surveyed didn't know their credit score - meaning they're not in a great position to take steps to improve it and could risk accidentally damaging it.

The three main credit reference agencies - Experian, Equifax and TransUnion (formerly Callcredit) - produce your credit score based on the information they hold about you in your credit report.

The score can give you an idea of how positively or negatively a lender will view you when deciding whether to approve you for a loan, credit card or mortgage deal.

Typically, a high credit score will help you unlock the best rates, while a low score could see you rejected or offered a worse deal.

Like lenders, each credit reference agency has its own system for assessing your creditworthiness and will take into account different factors when calculating a score.

So it's important that you check your credit report and score with all three credit reference agencies to ensure you're in the best position when applying for a financial product.

It's getting easier to do. NatWest and Monzo customers will soon show customers their TransUnion credit score for free.

If you find your credit score is low, you can take actions to improve it before applying for credit. Simple steps, such as registering to vote, can give your score a boost.

Find out more: how to improve your credit score

Check out the Which? Money Podcast episode that takes a closer look at the dark art of credit scoring with expert insights offered by James Jones from Experian.

4. Credit rejections are Experian's fault

Experian found that three in 10 wrongly think credit reference agencies (CRAs) decide who gets a credit card and one in five mistakenly think CRAs rule on loans.

CRAs such as Experian, don't make decisions about credit applications, they just supply the credit report which contains information about an applicant that a lender will use to make its decision.

It's the banks who are the real decision-makers.Wrongly believing the CRA is the reason for the rejection can waste your time and mean you don't take the right action to improve your chances of securing a deal.

While getting and keeping the highest credit score you can help toward being accepted for borrowing, on its own, it's no guarantee of being accepted by a lender.

Banks also put a lot of store in affordability. They glean this from your application form and their own records of existing and past customers.

Some take a score from a credit reference agency and only look at the credit report data when a closer inspection is warranted. Others take the data and combine it with their internal score.

Each bank has its own selection criteria. Some may, for example, rule out customers with unpaid bad debts or those under a certain income, so even if your credit score exceeds the lender's pass mark, you can still be turned down because you don't meet that lender's other requirements.

In many cases, lenders advertise their policy rules upfront to new customers, so people shouldn't apply for products they are definitely not going to get.

5. There's a credit blacklist

Experian's survey found that three in four believe there is some sort of credit blacklist.

There's no such thing as a credit blacklist, or list with 'risky borrowers', which lenders can use.

When you apply for credit you will be assessed on the information a lender has on you already (you might be an existing customer), what you put in your application and what it needs to confirm through your credit report.

  • Credit scoring can seem like a dark art. In our investigation into the sector, we found that many people were confused about the action that could boost or lower their score. Read more in: Credit scoring: are you in the dark?

How could Credit Awareness Week help you?

To combat the public's widely held misconceptions and help people manage their chances of getting cheaper lending, Experian plans to publish an updated guide on its website: 'Understanding your credit information and how lenders use it.'

Put together by the credit rating industry, it's designed to be a myth-buster on how your credit score is worked out and how lenders use it to decide how much you can borrow and at what rate.

For a quick and easy read, Which? also has a range of guides on credit scoring.

Experian has also updated its credit score map of the UK, which allows you to compare the average Experian credit score for across different age groups and areas of the country.