Credit Score Myths: Common Credit Misconceptions
Credit scores can be hard to understand. There can be a lot of complicated and confusing phrases, making it difficult to know exactly how your credit score works, and how it can affect you.
In fact, a third of Brits (32%)[1] told us they don’t know how to check their credit score (just one of the interesting facts we uncovered in our new survey.)
We asked the British public about credit scores and popular credit myths, and our survey revealed that the UK public is unaware of many important credit score factors.
That’s why at Lowell we’re passionate about helping to educate our customers about debt and credit – we’re on a mission to make credit fairer and more transparent for all.
Half of Brits never check their credit score
Checking your credit score is an important part of financial housekeeping, but our survey revealed that 49% of Brits never check their credit score.
As we’ve talked about in our guide to understanding your credit file, there’s a lot to know about your credit score, so keeping up to date with it is really important.
However, according to our survey, 10% of people would only check their credit score just once a year. One in five people (19%) also believe that each time you check your credit score it has a negative impact.
Checking your own credit score is known as a ‘soft check’. The check will be noted on your file, but it won’t have an impact on your score. However, applying for new credit, like credit cards, loans, or finance agreements, will require a ‘hard check’ from the lender – and repeated applications, or completing a lot of them in a short time, can decrease your credit score.
One of the reasons it’s so important to know what affects your credit score is so that you can then understand how to improve your credit score if it needs a little bit of help.
It's important to know what can affect your credit score
There are lots of things that can have an impact on your credit score – but more than one in ten people (12%) don’t think that anything they do affects their credit score.
The myths and confusions around credit, and especially about what does and doesn’t affect your credit score, mean that plenty of people are unclear about how their day-to-day spending could be decreasing their credit score.
Our survey also revealed some of these interesting truths about what Brits believe when it comes to their credit score. For example, three-quarters of Brits don’t believe that a phone contract can have an impact on your credit file (75%), and two-thirds (66%) don’t think that a car loan could affect your credit rating.
In fact, missing payments by 30 days or more can have a big impact on your credit – a fact that 45% of people don’t believe. For more information about the link between your credit file and missed payments, check out our helpful frequently asked questions about your credit file.
What can have an impact?
Two-thirds of the people we surveyed didn’t think that store cards could affect your credit score – but in fact, having lots of credit agreements, like in-store finances or hire purchases, can lower your credit rating even if you’re making your repayments on time.
When lenders decide whether they’re going to lend to you, they might look at your total credit and how many different lines of credit you have open to see your total repayments.
There's a demographic difference
When it comes to credit scores and knowing how to find out information, there’s a generation split. Almost half of people aged 16-24 (45%) don’t know how to check their credit score, compared to just 27% of those aged 55+.
Learning about money and finances can be especially beneficial to young people, according to the Money Advice Service, and learning about credit can help younger people in managing money and debt.
There are a lot of myths and misconceptions about credit that the British public believes to be true. Our survey makes it clear that plenty of Brits are unaware of some really important factors that can impact your credit score.
That’s why Lowell believes in helping to educate about financial issues, reduce the stigma of debt, and help our customers in their journey to becoming debt-free.
For more information about how Lowell works with our customers and more helpful financial guides, check out our debt guidance hub or the Lowell blog.
Survey Data: [1] Survey conducted by Censuswide on behalf of Lowell, 24/03/21 - 26/03/21. 1,001 general respondents in the UK
Published by Libby Davies 26th April 2021