Credit Score Myths Debunked – What are some common misconceptions?

Our credit scores play a crucial role in our financial day-to-day life. It influences our ability to secure loans, credit cards and even rent a property. However, there are numerous myths and misconceptions surrounding credit scores – especially if you haven’t really dipped your toes into it just yet. The results are often uninformed financial decisions, which might even damage your creditworthiness in the worst case. We’ve collected some common credit score myths to provide you with accurate information to help you better understand and manage your finances.

Myth 1: Checking your Credit Score actually lowers it

Weirdly, this is one of the most prevalent myths out there: the sole act of checking your credit score negatively impacts it. The truth is, checking your own credit score – also called making a “soft inquiry”, does not affect it even in the slightest. The soft inquiries are not visible to lenders and the only purpose they serve is conducting information for you. In fact, regularly monitoring your credit score can be quite beneficial, as it allows you to identify potential errors in time or promptly react to fraudulent activities.

Myth 2: A poor Credit Score lasts forever

Having a low credit score is not a life sentence. With responsible financial behaviour, you can comfortably boost your credit score over time. By paying bills on time, keeping credit card balances low or avoiding new debt, you can steadily rebuild your creditworthiness and regain access to better financial opportunities.

Myth 3: If you close a Credit Card, it improves your Credit Score

Some believe that closing an old or unused credit card account helps boost their credit score. When, in fact, often the direct opposite is true. Closing credit card accounts may actually decrease your overall credit limit, leading to a higher credit utilisation ratio – which at the end of the day negatively impacts your credit score. So, instead of closing the accounts, consider keeping them open – especially if they have a positive payment history, which improves the average age of your credit accounts and overall credit score. The history will not be erased one way or another, though. Positive account information can stay up to 10 years and negative for up to 7.

Myth 4: Your Income is actively affecting your Credit Score

This is also a popular belief, though credit bureaus in the UK do not consider your income when calculating your credit score. Instead, they focus solely on your credit history, payment behaviour, outstanding debts, and credit utilisation ratio. So, while a higher income may make it easier to manage debt, it doesn’t directly influence your credit score at all.

Myth 5: Settling Debts removes them from your Credit Report

Speaking of debt: if you’ve struggled with debt in the past and settled with creditors for a reduced amount, you might automatically assume that the debt will be wiped off your credit report at the end. This is not the case. Settling a debt for less than the full amount may be noted down on your report and might result in a negative impact. It’s always essential to fulfil your financial obligations to creditors if you want to maintain a positive history.

Myth 6: Only late Payments affect your Credit Score

While it’s true that late payments can significantly harm your credit score, they are not the sole factor that is being considered. Things like your total amount of debt or the length of your credit history – as well as the types of credits you use, can also influence your creditworthiness. Paying diligently is crucial, but so is the overall management of your financial health.