Facts and myths about your credit score

Here are the myths versus the reality about what will and won’t harm your credit rating:

Myth: Being turned down for credit will harm your rating.

Reality: Being turned down for credit is not held on a credit report so has no effect on how you’re rated. What does have an impact is if you’re unsuccessful and then repeatedly apply elsewhere without finding out what the problem is.

Every search on your file that lenders make when they assess you leaves a footprint. Too many in too short a time can look like you’re in financial trouble, which makes you look like a risk.

Myth: Regularly paying off utility bills will improve your score.

Reality: You should, of course, always pay your utility bills. But not all utility companies share their information with credit reference agencies, so don’t assume that lenders will know that you’ve
had a faultless history with your energy company.

Myth: Working in a salaried job will improve your score.

Reality: The fact that you have a job that pays a regular salary is not on your credit report. However, it will form part of a credit application and being employed and paid monthly is a sign of stability, which lenders like. They will also ask about your income to ensure that you can afford any new borrowing.

Myth: Being arrested or having a criminal record will harm your rating.

Reality: This sort of information is not on your credit file.

Myth: Being on the electoral roll won’t improve how you’re rated for credit.

Reality: This is one of the easiest ways to improve how you’re rated. It lets lenders corroborate your address and identity and is a sign
of stability.

Myth: Having several cards will harm how you’re rated.

Reality: It comes down to how you use them. If you’re struggling to juggle payments, lenders will see this. But if you’re using less than 50% of your available balance, can afford payments and are making them on time, these are signs of someone who can sensibly manage their credit.

It’s often better to have several cards with a lower balance on each than the same total amount all on one card. For example, if you had five cards with £1,000 credit available on each and each card was £100 in debit, but you transferred all the balances to one and cut up the others, it would probably have a negative impact. That said, some lenders may perceive a risk if your available balance is far, far more than you could ever afford to repay.

Myth: Missing a credit card or mortgage payment won’t harm your score.

Reality: Missing repayments is one of the most harmful things on your credit report. Lenders want to know you are reliable and not always making repayments says the opposite. Missing one or two may not make too much difference, but if it looks like regular behaviour, lenders will shy away.

And remember that missed payments stay on your account for six years – so you could be storing up real ­problems for the future.

Myth: Paying off a credit card on time has no impact on your rating.

Reality: A strong history of regular payments and settling of accounts is exactly what lenders want to see.

Myth: Having a credit card will harm your rating.

Reality: If you don’t use credit, lenders find it hard to assess whether you would be a good person to lend to. Remember, they are looking for evidence that you are a safe bet.