Credit can be confusing – but it doesn’t have to be. It’s all about having the correct information, so you can understand credit and use it in a way that works for you.
To help you sort fact from fiction, and with tips from two experts on consumer credit, we reveal the truth about these often repeated myths about borrowing money.
Myth 1: Using credit is a bad thing
A common misconception about credit is that it’s something to be avoided at all costs. But when handled wisely, it can be a valuable tool to help you manage your finances and also build up your credit score.
“It can be useful for things like spreading the cost of large purchases or paying for emergency expenses, and many people use it without any issues,” says Craig Simmons, former head of debt and credit policy and strategy at the Money and Pensions Service (MaPS).
Around four in five people in the UK currently use credit in some form – a credit card or personal loan, for example – according to MaPS, with the Bank of England recently reporting that the number of households taking out credit cards rose by 12.1% between 30 September 2021 and 30 September 2022.
“By taking out smaller loans or credit cards and paying towards them each month, you can also build your credit score, which acts as your financial CV,” explains Simon Norman, head of unsecured lending at Virgin Money. You are showing lenders how you spend, “which they will take into account before agreeing to offer you credit”.
When looking at credit products, you’ll need to ensure that anything you pick is suitable for your specific circumstances. This involves comparing a range of products and providers. You should also be confident that you can pay back the full amount you have borrowed, including any interest you will be charged.
“It’s important you can afford any credit you take out and have a plan to pay it back. Owing more money than you can afford can lead to money problems, so you should also consider if there are better options for your circumstances,” cautions MaPS’ Simmons.
Myth 2: Tying the knot means your finances are married too
You may think that if you are in a relationship, your finances are automatically linked together. However, this isn’t true.
The only way you’ll be linked to someone else financially is if you take out a financial product together, such as a joint loan, mortgage, or bank account. Since couples often take out a joint mortgage when buying their first home, this is commonly the time when two people’s finances become intertwined, hence the origins of this myth.
Once you have joint finances, your credit records will be connected and your individual financial transactions could affect each other’s credit scores. If you apply for credit, a lender may look at both of your credit files when assessing your application, even when only one of you is applying.
But it is worth noting that interlinked finances don’t have to last forever. So check whether you are still financially connected with someone if you used to share an account or credit product but it’s no longer the case.
“If you have previously taken out credit with someone but don’t share any joint accounts now, you can ask for a financial disassociation with all the credit reference agencies,” Simmons explains. This will unlink your credit records so the other person’s finances no longer affect your score.
Myth 3: You can damage your credit score just by checking it
It is always a good idea to know your credit score – even more so if you’re considering taking out a financial product – but many fear that checking your score could damage it.
The good news is that simply checking your credit score with one of the UK’s credit reference agencies will not affect or change it.
What’s more, being aware of your score will give you an idea of the products you’ll be eligible for.
For example, if you have bad credit and don’t know it, you might apply for a range of products you don’t qualify for. Frequent applications and rejections for credit could damage your score.
However, if you need to check your eligibility for a specific product, you could look for lenders that offer a ‘soft credit check’ to assess your likelihood of being accepted. Other lenders cannot see soft searches, so these checks will not negatively affect your chances of acceptance or your credit score.
Myth 4: If one lender says no, you won’t be able to borrow elsewhere
If your application has been rejected by one lender, you might assume that you will be turned away by other lenders too. However, this is not always the case.
“Each lender has different criteria that you will need to meet before they can agree to a loan or credit card, meaning you may still be eligible to apply elsewhere,” says Virgin Money’s Norman.
However, it’s worth remembering that making lots of loan applications can affect your credit score and hinder your chances of getting accepted for a loan in the future because it could give the impression that you are in financial difficulty and desperate for credit.
Myth 5: Lenders can’t help if you get into financial difficulty
Your lender should be your first port of call if you are finding it difficult to make your credit repayments. They may be able to give you more time to pay or offer you a payment holiday, for example.
“A responsible lender will work with you to iron out the problems and come up with a practical solution,” says Norman.
If you have more than one credit agreement and feel you need further help and support, there are other organisations you can turn to.
Simmons advises: “If you’re struggling, for example falling behind on lots of debts, seek free and impartial debt advice as soon as possible.”
National debt charities, such as StepChange or National Debtline, offer support online or over the phone. For example, they could help you set up a debt management plan (DMP) or an individual voluntary arrangement (IVA) to help you get out of debt.
Clueing up on credit
Taking out any type of credit can lead to uncertainty and confusion, but getting all the facts and talking about it is key to understanding credit and using it responsibly. Simmons concludes that it is important to have open and honest conversations about money so that you can feel more in control of your financial decisions.
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