Wealth

The 13 most common credit report myths

Nowadays it’s common knowledge that cats have nine lives.  And we all know that blondes have more fun, size doesn’t matter, and money can’t buy you happiness!  Yet there still seems to be a lot of mystery surrounding credit. Can the previous tenants of your house ‘ruin’ your credit rating? Will just one missed payment harm your chances of getting credit?

NMTBP looks at the 13 most common credit report myths

Background

Since the credit crunch, we ‘know’ the importance of ensuring our credit record is not only accurate but also as ‘good’ as possible.  Or do we?

Lenders aren’t the only type of company that may search your credit record – when you sign up to a contract for a mobile phone or for a gym membership for example, you may be subject to a credit search. In addition, landlords will often check the records of prospective tenants to make sure they’re responsible and will pay the rent. Just remember, though, that firms must get your permission before they run a credit search on you

Your credit report contains information about you from the electoral roll, any financial links you might have with others (a joint mortgage, for example) and whether you have any County Court judgments bankruptcyorders or individual voluntary arrangements

Most importantly, your record includes all your credit agreements from the past six years – including how you have managed your repayments and the amount of credit you have available to you

It’s good practice for you to check their credit records on a regular basis to make sure all the information is correct and to ensure you  haven’t fallen victim to identity theft

However, like many others, you may be deterred from requesting this information fr fear of leaving a ‘footprint’ on your report that you believe will have a detrimental affect on your ability to get credit in the future

This is just one of many ‘myths’ surrounding credit reports:

Credit Myth 1 - Credit bureaus such as Experian, Equifax and CallCredit decide whether or not I qualify for a lender’s products

Credit reference agencies just collate credit information provided by credit lenders and other financial institutions, as well as information from local authorities and the electoral roll.  This information is held on your credit file for lenders to search.  Each lender then applies their own credit scoring model to decide whether or not you’re a suitable customer

Credit Myth 2 - All lenders use the same credit scoring system

Although it’s a common belief that there’s a generic credit scoring system (also known as credit rating system) used by all lenders, this is simply not true.  Every lender has its own formula for calculating your credit worthiness, and they update them regularly depending on their criteria and lending policy at the time.  It’s for this reason that whilst one lender may decline your application for credit, another may happily accept it.  So don’t give up at the first obstacle

Credit Myth 3 - Other people who live or used to live at my address have damaged my credit rating

Your credit report only contains information about you. While your address (and your previous addresses from the previous six years) will be included in the public information about you, the credit history of previous or other current residents won’t impact your score

However, if you share a financial product with another person then their score could impact your rating

Credit Myth 4 - I’ve been blacklisted

There’s no such thing as a blacklist.  Creditors make a decision at the time of your application based on your credit score and the information you provide on their application form.  Obviously, if there is something on your credit report that the lenders don’t like, this will affect your ability to obtain credit.  But for the same reason mentioned above, just because one lender says no, that doesn’t mean all lenders will

Credit Myth 5 - Checking my own credit report will affect my credit score

When you check your own credit report it is only recorded as a search on your copy.  No other organisations will be able to see this entry, therefore you can check your own credit file as often as you like, and even request your report from more than one agency, without affecting your credit score. BUT see 6, below

Credit Myth 6 - The number of credit searches I’ve had doesn’t affect my credit score

Each time you apply to a lender for credit, you’re giving them permission to search your credit file.  Each credit search (also known as a credit check) is recorded on your credit report for one year (two years for debt collection searches) and can be seen by subsequent lenders.  Too many credit searches can be seen as a sign that you’re desperate for credit, that you’re attempting fraud, or that you’re a prime candidate for over-borrowing and getting into debt.  This could lead to your application being declined

Try to keep your credit checks to a minimum.  If you’re getting a quotation and not actually applying for credit, it’s now possible for many lenders to do a quotation search that won’t show up to other lenders

Credit Myth 7 - Only financial products are included on my record

Most people assume that only credit cards, loans and mortgages are included on their credit rating. In fact, if you miss a mobile phone payment or forget to pay a utility bill, this will also be noted on your record and could impact your ability to borrow in the future

 Credit Myth 8 - I’ve never borrowed so my credit record is squeaky clean

This may seem strange, but to never have had any credit can actually give you a low credit score. The reason for this is that you have no credit history.  It is impossible for a lender to build up a profile of you to determine whether or not you will be a good customer

If you have never had a credit agreement then taking one out and repaying it in full and on time will improve your rating. Most store card providers don’t carry out credit checks, so this is an ideal place to start. Just make sure you pay off the balance in full and on time

Credit Myth 9 - Being turned down for credit will show up on my record

When a firm searches your credit record, it leaves a ‘hard footprint’ that can be seen by other lenders. However, if you’re rejected for a loan, for example, this won’t be recorded on your file. On the other hand, making numerous applications for credit within a short space of time can adversely affect your credit rating

Credit Myth 10 - I’ve paid off all my debt so having credit cards won’t impact my rating

When lenders consider you for a loan, they pay particular attention to the amount of credit you have at your disposal – even if you aren’t currently using it. Having several dormant credit cards might cause concern, as it suggests the potential for you to run up great piles of debt. It’s therefore worth cancelling some or all of your credit card agreements once you no longer need these cards

Credit Myth 11 - A missed credit card payment from a few years ago has damaged my rating

Your credit report contains all your credit agreements from the past six years, and includes how you’ve managed your repayments. For example, a 0 indicates that your payments are up to date while a 4 shows payments are four months late. The letter D indicates the account is not being used while a U is displayed when a credit agreement is new and the information is not yet available

If an account has been settled and you made all the repayments on time, then this will be recorded. But if an account was in default because a payment was late then the date this happened and the amount outstanding will be included

While missing a payment will be recorded on your file and could affect your overall credit score, it’s worth remembering that lenders will put more prominence on more recent activity. If you have been completely up to date with all your credit agreements, but once missed a payment, this won’t necessarily ruin your chances of getting credit in the future

You can also include a statement on your report where you can explain why you missed a payment. Although lenders don’t have to take this into account, it at least gives you the chance to tell your side of the story

Credit Myth 12 - It’s impossible to improve my rating

Many people assume that once they have missed a payment, or taken on too much debt, then their credit record is damaged and there is nothing they can do about it. But in fact, there are steps you can take to improve your record and overall credit score

As well as making sure you make all your payments, you should focus on trying to pay off some of your debt. For example, rather than just making the minimum repayment on your credit card each month, try to clear as much as you can afford – or, even better, pay off the entire balance

Not only will this save you money as you won’t face interest payments, but you’ll also reduce your overall amount of indebtedness. As per point 10, though, you should also consider cancelling unnecessary credit card agreements

You should also check your credit report for mistakes or suspicious footprints or credit agreements you weren’t aware you had. If you spot a mistake or suspicious activity then contact the agency that sold it to you. It will be able to investigate the matter and find out whether you have been the victim of ID theft or a bank’s mistake

If you’ve been turned down for a loan or other credit agreement then you have the right to know why. Ask the lender for details of your application as this may highlight any mistakes or issues with your report

Credit Myth 13 - Checking my credit report will be expensive

THIS IS PERHAPS THE MOST PERNICIOUS MYTH OF THEM ALL, NOT HELPED BY THE PERCEIVED MONEY GRABBING ATTITUDE OF THE CREDIT REPORT COMPANIES

A quick internet search will reveal dozens of companies that offer people their credit report, but the three most popular credit agencies are Experian, Equifax and Callcredit. By law all credit agencies are required to provide you with a one-off copy of your credit report for £2

At long last this can now be done online, much quicker than the old mail-only method. Here are the direct links; Equifax (instant, see below), Experian (4 days), Callcredit (instant, see below)

Instant reports will be subject to the credit agency being able to verify your identity instantly. It may ask you to contact it to confirm your application

The statutory report contains your personal details, info on financial links to other people, whether you are on electoral roll, the credit accounts you have, any missed payments or defaults, and a list of other recent searches on your file

However, you can also purchase additional products that allow you unlimited viewings of your rating online. BEWARE - these are always advertised as ‘free’ but usually only have a ‘free’ introductory period (typically 30 days) after which a direct debit will kick in (Equifax is £6.99 a month and Experian is £14.99 a month). If you’re disciplined enough you can sign up, enjoy the 30 day period and then cancel, as many times as you like

One to consider is Callcredit’s Noddle, which IS free but not as widely used by providers as the other two. Visit its website, register your details and it will email you back with details on how to see your credit file, as many times as you like. If you fail to log in every three months membership could expire, as Noddle reserves the right to cancel dormant accounts, though users can join again for free if it does

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