Top 10 credit myths
When you apply for credit, lenders look at your Data Self to help them decide whether to approve you. Your Data Self is a version of you that’s made up of things like your credit history, including your accounts, payments and debts. It helps lenders see if you’re likely to repay them. If your Data Self looks unreliable, lenders may refuse you credit or offer you worse deals.
You can get to know your Data Self by checking your Experian Credit Score. This is a number from 0-999 – the higher it is, the more likely you are to be approved.
Therefore, improving your score increases your ability to get the best credit deals. You may be able to get a good deal on a loan, a higher credit card limit, and pay less interest on your mortgage. Ultimately, a better rating can help you save money and make borrowing easier.
Here's how to improve your Experian Credit Score:
Get on the electoral roll. This should be easy to do if you’re a British or EU citizen. Lenders will check your name and address to prove that you live where you say you do. You can do this even if you are still living at home with parents, or sharing student accommodation. This makes it easier for banks and financial institutions to confirm your identity.
Having accounts such as a bank account could really help. Initially, taking out a new account might see your score reduce a little, but managing it well should help to improve your Experian Credit Score whilst building your credit history. A bank account with an overdraft facility is a form of credit and can show that you can keep within its spending limits.
Lenders typically like to see previous borrowing history. Taking out smaller forms of credit like a mobile phone contract, store card or credit card could be easier to get accepted for. If you manage them well, they should show that you can pay bills responsibly and on time each month.
Consider closing unused credit accounts if you no longer require them. Lenders can take into account the credit limits available to you, not just what you currently owe. It could be better to have fewer, well-managed accounts, and long-standing accounts with good histories.
Applying for lots of credit can suggest you are over reliant on credit to supplement your income. If you can, aim for no more than one application for credit in a three month period – this could be applying for a credit card, debit card, mortgage… even a car finance deal.
Having new credit accounts may result in a decrease to your Experian Credit Score. However, as your accounts get older, having multiple accounts which you are managing well could have a positive effect on your Experian Credit Score.
Your ‘available credit’ is the difference between your outstanding balance and your credit limit. If you have low available credit, or a large number of your accounts are using above 50% of your available credit, banks and financial institutions may think you’re struggling to manage your finances.
Any missed payments will negatively affect your Experian Credit Score for up to six years, although the impact will lessen over time.
Accounts become delinquent when you’re late on payment. A default is usually where the relationship with the lender has broken down, typically as a result of missing several payments. Defaulted accounts will drop off your credit report after six years.
County Court Judgements (CCJ), Bankruptcy, Individual Voluntary Arrangements (IVA) and Scottish Trust Deeds will have a negative effect on your Experian Credit Score. A CCJ record should drop off your credit report six years after the CCJ was raised. A bankruptcy or IVA record should also disappear after six years, so long as you’ve been discharged from the bankruptcy / completed your IVA. .
Look out for unfamiliar or suspicious entries in your report, such as an account you didn't open, a sudden surge in the amount you owe or new credit applications you didn't make - they could mean you're a victim of identity fraud.
If you have a credit history from a previous country, some lenders may be willing to take this into account when deciding whether to do business with you. You’ll need to get it from the credit reference agency in that country, and share it with the lender, but it could be a big help.