Three quarters believe in a credit blacklist…it’s a MYTH! We’ve asked the experts what you should know
Many of us know that having a good credit score is key to getting accepted for the cheapest cards, loans and mortgages.
Yet new research by credit reference agency Experian shows that 72 per cent of consumers do not know what their score is – and almost half have never checked it.
On the eve of Credit Awareness Week, an initiative set up by Experian to help acquaint consumers with their credit report, The Mail on Sunday and the credit agency expose some of the biggest myths around credit scores.
Many people believe five widely held common myths about their credit score
Experian’s James Jones says: ‘There are a number of common myths about credit scores and we run Credit Awareness Week each year to help tackle them.
‘We want everyone to at least get to grips with the basics, so they can use this knowledge to make their credit information work for them.’
What Affects Your Credit Score
1. Account defaults and county court judgments: if moving home, redirect your post so you receive notifications about any unpaid bills and avoid a default or court judgment at your previous address.
2. Late payments: a single late payment can damage your credit score, so set up a direct debit to make monthly payments on time.
3. Using too much of your credit limit: lenders like to see a proven track record of responsible borrowing, but try not to use too much of your credit limit.
4. Not registering on the electoral roll: if you are not already registered, do so as soon as possible as this is a sign of stability and will improve your credit score.
5. Making too many applications: applying too often can make you look desperate for credit, so space out applications by around six months.
6. Financial associations: if you previously had joint credit with a partner (or anyone else) but are no longer connected, ask the credit reference agencies for a ‘financial disassociation’ to separate your reports in the eyes of lenders.
Myth 1: There is a credit blacklist. Three-quarters of people believe that being on a ‘credit blacklist’ will affect their chances of getting accepted for credit despite there being no such list.
But awareness is increasing as this figure is down from 80 per cent in 2017.
Myth 2: Previous occupants of your home can affect your credit score. There is also uncertainty around whether an address can be blacklisted, with more than a third incorrectly believing previous occupants can affect their credit score. In fact, an individual’s credit application can only be affected by someone else’s credit history if there is a financial association, such as a joint account.
Myth 3: Credit refusal damages your score. Being turned down for credit can be distressing, but contrary to what 71 per cent of people believe, this will not affect their credit score. All that will be recorded on their report is the fact they applied for credit.
Myth 4: Credit agencies decide who gets accepted for credit. More than a quarter of people incorrectly believe credit reference agencies decide whether a credit card application will be accepted, while 20 per cent make the same assumption for loans.
In fact, it is always the lender that decides which customers to accept, using some of the information provided by credit agencies.
Myth 5: Checking your credit report harms your score. One in seven believe that checking their credit score will negatively affect it. However, most consumers are aware that it will have no impact, no matter how many times they check it.
Another area the Experian research has shed light on is the lack of awareness about services that determine someone’s eligibility for credit – such as those offered by MoneySavingExpert, price comparison websites, some high street banks, as well as Experian.
Half of consumers say they have never checked their eligibility for credit, with awareness particularly low among the older generation. Just 15 per cent of those aged over 55 say they have checked their eligibility, compared with 39 per cent of 25 to 34-year-olds.
Using an eligibility service can be helpful before applying for credit as it shows customers with credit cards, loans or mortgages are more likely to be accepted for credit and it reduces their chances of being rejected.
Jones says: ‘Eligibility services help you shop around without damaging your credit score while some can even show you what interest rate or credit limit you’ll get before you apply, putting you in the driving seat.’
Clive Lawson, managing director of Experian Consumer Services, says: ‘Our annual credit awareness week survey gives us the opportunity to test public understanding of these important issues, and this year’s findings provide much food for thought.
‘We’ve made positive progress in some areas but the clear message from the findings is that there is much more to do – as an industry – if we’re to empower people with the knowledge to take control of their finances and understand how they can make their credit information work for them.’
THIS IS MONEY’S FIVE OF THE BEST CREDIT CARDS