Common credit myths

The truth revealed

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Common Credit Myths

Knowledge is power when it comes to getting the credit you want. Start by understanding the impact your credit history has on the type of offer you get — or whether you get an offer at all.

Don't get taken in by these top 10 credit myths

Myth 1: Previous occupants of your address affect your credit rating

It makes no difference if the previous occupant of your home was a millionaire or bankrupt. You will not find their name on your credit report unless you share a financial connection with them, such as a joint account. Lenders are only interested in your financial details, plus those of anyone you're financially linked to. They do like to see stability, though, so they will want to know your previous addresses.

Myth 2: Credit reference agencies make lending decisions

Credit reference agencies compile and hold your credit report securely - Experian is the UK's largest. They don’t make decisions; that's up to lenders, who check the information in your report along with other information such as items from your application. Most will then use this information to calculate your credit score, to help them decide whether to offer credit.

Myth 3: Past debts don't count

Unfortunately past debts do count. Court judgments for non-payment of debts, Individual Voluntary Arrangements (IVAs) and bankruptcies stay on your credit report for at least six years. Even a missed repayment on something like a credit card is recorded on your report for at least six years. Any of these could count against you as lenders may think that you will miss payments with them too.

Myth 4: If you've never borrowed, you'll get the best deals

If you've never borrowed, lenders have no way of predicting how reliable you'll be in the future and may even reject you. Most of them would rather see a credit report showing a few well-managed loans or cards and regular repayments.

Myth 5: You could be on a credit blacklist

Blacklists don't exist and your credit rating doesn't take account of your race, ethnic origin, religion or gender. Some factors that lenders do consider include your repayment history and how much you already owe. They want to be sure that you aren't taking on more credit than you can comfortably manage.

Myth 6: Friends and family living in your home affect your credit rating

Unless you share a financial connection with any of them — for example, a joint mortgage — friends and family have no direct impact on your credit rating. Just living with someone doesn't create a financial connection.

If you do have a financial connection with someone lenders may look at their credit report as well as yours when you apply for new credit, as their circumstances could affect your ability to make repayments.

Myth 7: Repaying your credit cards in full lowers your credit score

This is nonsense - in fact, you’re likely to get a better credit score, because it shows you can afford your borrowing. You're more likely to get a lower score if you miss payments, make just minimum repayments on your cards or borrow right up to your credit limits.

Myth 8: It doesn't matter how many credit accounts you have

Lenders want to be sure that you can afford more credit, so they prefer it if you don't already owe large amounts on multiple accounts. They can also favour customers who aren't heavily reliant on the credit they already have. So, try to keep your regular borrowing on cards to less than 25% of your credit limits if you can.

Myth 9: You only have one credit score

Each lender uses a unique method to calculate credit scores and some use a different formula for different products, such as loans and credit cards. So you could get three different credit scores if you made three applications in a single day, even to the same lender.

Your credit history and score also change as your circumstances change; missing a few repayments could lower your score, while paying off a debt could give it a boost.

Myth 10: Items in your credit history stay on file forever

Your credit report is designed to give lenders a decent picture of your recent and current financial position — they're not interested in seeing that a 40 year old missed a few repayments when they were 21 because it has no relevance to their likely behaviour today. Most information about your credit history is therefore held for around six years.

One of the best ways to stay in control of your finances is to check your Experian Credit Report.

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