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15/08/2018

5 Surprising things that DON’T affect your credit score

15/08/2018

5 Surprising things that DON’T affect your credit score

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Your credit score is something that is very defining in the financial world. It holds a lot of power and is more often than not the determining factor when it comes to you being able to obtain credit.

In today’s world, it’s important to know how your credit score works. It’s easy to find all the things that can make your score better or worse, but there are some things out there that actually have no affect on it at all.

We’ve compiled a list of five common myths about credit scores that in actual fact, have no impact at all on your likelihood of being accepted for credit.

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Credit score basics

Before we jump into the list, we figured it was fitting to explain how credit score are worked out and show you the things that go into the calculation. Your score will differ depending on where you look for it, but the one that’s used most by credit companies is the FICO system.

In this system your score is based on the following:

Payment history

This is one of the most important factors in the calculation of your score as it essentially determines your ‘creditworthiness’, which shows how good you are at paying back money owed.

Balances owed

The more you owe; your score will change, which is why it’s important not to max out your limits.

Credit history

This is essentially a track record of credit that you have used or are using, which shows how responsible you can be with borrowed money.

Number of accounts

Your score can be damaged if you open multiple credit accounts in a short period of time. As such the number of accounts you have becomes a factor in your score as it can suggest that you cannot manage your accounts.

Types of credit

There are multiple kinds of credit you can take on, and the more of a mix you have the better as it shows you can handle different kinds.

Now that we’ve got that out the way, let’s get into the myths that don’t actually affect your credit score:

Using a debit card or prepaid card

Your debit card or prepaid card can be great for helping you stick to a budget, but don’t actually do anything for your credit score.

These transactions won’t affect your credit score or show up on your report as you are using money you already have and not borrowing credit.Checking your credit report

This comes as a surprise to most people but checking your credit score doesn’t affect your score.

It does leave a mark on your report, which is known as a soft search, but this can’t be seen by lenders. As such, it’s important to check your score regularly to make sure it is correct.

Your income

Your salary doesn’t affect your score or appear on your credit report. This is because your credit report is about how much you borrow, not earn.

However, most lenders will ask you for your income when making an application – so it can affect whether or not you’re accepted for credit. This is especially true when it comes to mortgage applications for companies to compare this to your outgoings.

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The credit score of the people you live with

If your partner/relative or friend has a poor credit score this won’t have an impact on your score.

However, if you share any financial connections such as a joint account, mortgage or loan, their name can appear on your credit report which could affect the likelihood of you being able to get credit.

In cases where you’re no longer linked with another person who appears on your report, then you can dispute this with the credit reference agencies.

Your outgoings

At the moment, general outgoings such as council tax and utilities don’t appear on your credit report or affect your score.

However, some companies are starting to share this data with credit companies, so within the next few years if you make any late payments on your bills, this may affect your credit score. This will in turn mean that the method you use to pay things such as your utility bills may end up affecting your score.

It’s also important to note that, even though utility bills don’t appear on your credit report, they may still affect it in some situations. However, this is more often in cases of numerous missed payments or if your account goes into default and gets passed to a collection agency.

If you are worried about your credit and would like to speak to one of our friendly advisers, contact us on 0808 156 7730. They are on hand to help you work through your debts with you and find a solution that’s right for your circumstances.

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