The truth about your credit rating: Six common myths busted

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The truth about your credit rating: Six common myths busted

Most adults have a credit rating, but not everyone understands how they work. It pays to know your stuff because keeping your credit rating in tip-top shape can save you money.

Credit ratings are like your own personal ‘credit fingerprint’. They give lenders an idea of how likely you are to meet payments on a loan or other credit arrangement. But there are plenty of myths and misconceptions about how credit ratings work, so read on as we lift the lid on six of the most common credit ratings myths.

Couple on a laptop

THE MYTH:

I don’t need to worry about my credit rating unless I’m applying for a mortgage.

THE REALITY:

Credit ratings can affect your entire financial life. Before any lender offers you a credit card, loan, overdraft or even a mobile phone contract, they’ll check your credit ratings. They want to see how likely you are to pay the money back. For instance, nearly all car insurers now consider your credit ratings when determining risk and price. The stronger your ratings, the stronger your access is likely to be to a better product range.

Confused by credit ratings? We can help guide you through in just a couple of minutes. Use our handy Credit Builder tool to better understand what impacts your credit rating, and how to make changes for the better. Start building your credit rating today.

THE MYTH:

I don’t have massive debt, so my credit rating will be fine.

THE REALITY:

There are lots of other factors apart from debts that can affect your credit rating. If you always pay on time your credit rating will thank you for it. But if you miss a payment, or pay late – even if it’s just the once – you could miss out on the best deals or interest rates.

Your credit rating can also be affected by other people’s finances. Joint accounts, mortgages and being a guarantor for someone else connects you financially with them. This means your future credit rating could be affected by their spending, even if you’re no longer living together. It may be wise to check your credit report to make sure your info is up to date, and then remove any old connections.

Couple on a laptop in a coffee shop

THE MYTH:

My credit rating is a mystery to me. The information’s only available to banks and other lenders.

THE REALITY:

Credit Reference Agencies (CRAs) keep information about all your credit applications and payment history on a credit file. Your credit report will be generated from the credit file, when you request a copy.

Any time you apply for credit – from mobile phone contracts to mortgages – the lender will rely on both the information from credit reference agencies and on their own internal measures to make a decision.

In fact, it’s quite easy to get your hands on your credit report from CRAs like Equifax, Experian or TransUnion, on request. Under the Data Protection Act 2018 you have a right to1 :

•  request a copy of your credit report
•  dispute inaccurate information on your file
•  get errors corrected within 28 days

To get your statutory report, one option is to visit the websites of one the main CRAs and look for the section on requesting your ‘statutory report’.

Barclaycard customers also have free access to their Experian credit score via our website or app.

When looking at your credit report, check the details of all your current and previous financial accounts, how much credit you have available to you and your record of paying off debt.

The amount of credit applications you’ve made will be included in your rating. Being declined for credit can actually damage your credit rating, as can making too many applications.

One idea is to try a ‘soft-check’ credit card eligibility checker to see whether you’d be likely to be approved for credit before you actually apply for it. Using this tool won’t affect your credit rating and in fact Barclaycard has an eligibility checker like this too.

1 Statutory rights

THE MYTH:

My credit rating is horrible, but the damage is done and there’s nothing I can do about it.

THE REALITY:

A bad credit score is considered 0 – 379 for Equifax, 0-720 for Experian or 1-2 for TransUnion. If your credit score does look like that, it’s not a total disaster. There may be simple things you can do to repair it over time.

For example, you can check your credit report for genuine mistakes, such as an incorrect address, and then contact the credit reference agency to fix it. Or, say you moved out of a house-share and the tenant who stays there misses a water payment bill, you can contact the credit reference agencies and request that a statement what happened is added to your file. This can soften the blow of any marks on your record.

If you do miss a payment, you may be able to counteract the negative impact, over time, by demonstrating good borrowing behaviour. If there’s a chance you might miss an upcoming payment, let your lender know as soon as possible. Often lenders have a short grace period before informing ratings agencies.

If you're worried about missing any more payments, you should speak to your lender to see if a direct debit might be a better option for you.

Young couple holding hands and leaning against a mustard yellow wall

THE MYTH:

Getting a credit card will only make my credit rating look worse as it’s more debt.

THE REALITY:

Using a credit card responsibly can help turn your rating around. Lenders like to see that you’re able to manage credit when you have it. Paying more than the minimum payment each month, staying well within your available credit, never making a late payment – these are all ways to show you can manage money. And over time they can help patch up a poor rating.

Here’s some handy information on managing your card repayments.

Bear in mind that if you do get a credit card, but then mismanage it, for example by missing payments, then this would negatively affect your rating.

Also, if you make too many credit card applications in a short time, this could lead to you being turned down. It can be useful to make a 'soft check' or 'eligibility checker' before you apply for credit, as outlined earlier in this article. That way you could find out if you'll be accepted before you apply - without affecting your credit rating.

THE MYTH:

Keeping an old account open won’t affect my rating as long as I never use it.

THE REALITY:

Some lenders don't like it when customers have unused credit accounts, in case they then use it all and have trouble paying off what is due. Closing old and unused accounts could potentially improve your credit rating. But on the other hand, it’s important to know that accounts you've used responsibly for years are a good sign that you know how to look after your money.

Ready to start building your credit rating? We can help guide you through the confusion of credit ratings in a couple of minutes. Jargon-free. Use our Credit Builder tool to better understand what impacts your credit rating, and how you can make changes for the better. Start building your credit rating today.