New research from connectivity network giffgaff shows that nearly a quarter (23%) of people have avoided checking their credit score because they were worried that the act of doing so might lower it. If you do check yours, you might be faced with a number you don’t particularly understand. It can feel easier to just ignore it – but your credit score can have an impact when you’re applying for things like a loan, credit card or mortgage. Credit scores are shrouded in mystery, with plenty of misconceptions about what does and doesn’t affect them. So, what should you actually believe? Big Issue is here to bust some common credit myths.
What is a credit score?
Credit is essentially borrowing money or using a service with an agreement to pay for it later, whether that’s through a credit card, loan, overdraft or some mobile phone contracts. Your credit report is a record of how you’ve managed credit over time – such as borrowing and repayments. Your credit score is based on the information in that report, which gives an indicator of how you’ve managed credit in the past. Lenders use this information, alongside other factors, when deciding whether to offer you a loan or mortgage. A good credit score can help your chances of being accepted
Myth one: checking your credit score can lower it
This is one of the biggest misunderstandings around credit scores, and it might be the very thing putting you off checking yours. Your own credit check is what’s known as a “soft” search, which doesn’t affect your credit score. It’s a way of seeing what information is held about you without leaving a mark that could affect future applications. That’s different from a “hard” search, which can happen when you formally apply for credit.
Myth two: your salary affects your credit score
According to the giffgaff survey, almost a third (32%) of people think their salary can affect their credit score. But your salary isn’t part of your credit score. That doesn’t mean your income is irrelevant when you’re applying for credit. Lenders can look at your income and affordability when deciding whether to lend to you, but that’s separate from the number that makes up your credit score. In the same way, benefits like universal credit do not appear on your credit report. They don’t directly affect your credit score, though they can show up in an affordability check, too.
Myth three: your savings affect your credit score
Nearly a quarter (23%) of people think their savings balance can affect their credit score. Having money tucked away can be useful, but it doesn’t directly boost your credit score. Your credit report is about your history of managing borrowing and repayments, rather than how much money you have sitting in a savings account.
Myth four: there’s one universal credit score
You may think your score is one fixed number every lender sees, but it isn’t. Different credit reference agencies can calculate scores differently, and lenders have their own criteria for deciding to offer you credit. The number you see when you check your score isn’t necessarily the number a lender will use.
