Confused about credit

Many things affect your credit score, including the value of any loans you have outstanding, your repayment history, how many loan applications you have made and how much credit card debt you have. But there are also a lot of misconceptions about what can affect your credit score. So let’s have a look at six things which most people think do affect their credit score which don’t.

1. Marital status

It is commonly thought that married people are looked at more favourably than single people. But the truth is your marital status is not considered when making a loan application. However, your spouse or partner may still affect your ability to get a loan if you have a joint account or mortgage with them.

2. Interest rates

Generally speaking, the higher your credit score the less interest you’ll have to pay. But some people believe that if they have had a high-interest loan in the past this will make them look less creditworthy in the future. That is not the case. The interest rates on your previous loans are not considered, only whether you paid them off or not.

3. The value of your assets

It doesn’t matter if you have a large mansion in the country or a small Pied-à-Terre in the city. The value of your assets does not count for or against your credit score. Only your outstanding debt and repayment history are considered. Your bank may still ask for details of your assets, however, which may make it easier to get a loan if they can be provided as collateral.

4. Your income

Believe it or not, your income bears no relation to your credit score. It is perfectly possible that a barista can have a higher credit score than a Premier League footballer. It all depends on your outstanding debt and repayment history. Although, when it comes to obtaining credit or applying for a short term or personal loan, your lender will take your income into account.

5. Demographics

It is widely known that certain demographics have higher credit scores than others. But demographics do not form part of your credit score. You are not penalised because you are a student or live in a low-income neighbourhood.

6. Checking your credit score

Many people think simply checking your credit score will adversely affect your result. This is not the case. Constantly applying for credit can affect your score because the search is recorded and held for 12 months. But checking your score is not recorded in any way.

Basically, the only things that affect your score are the amount of debt you owe, your repayment history, your exposure to debt via your available credit limits/balances, the number of times you have applied for credit and the names of any people you have shared accounts with. So if you’ve been putting off applying for credit because you think your credit score may be adversely affected by any of the above, you have nothing to worry about.

Contact us for further information