Knowing your credit report inside out is the best way to make sure it doesn’t trip you up. Important things to remember are:
- You’re only linked to those who you have joint financial responsibilities with
- Credit blacklists don’t exist
- A pristine financial history doesn’t guarantee you credit
How do banks actually decide when and what to lend? We all know credit scores, ratings or reports are the vital pieces of information that inform lenders if we’re desirable customers, but so many myths surround them that it’s time to sort the fact from fiction.
Fiction: Previous occupants of your house can drag down your rating
Fact: Those who lived there before you have no effect on your credit rating
Many people believe that the tenuous link of taking over a property from another person can somehow infect your credit-worthiness. It doesn’t matter a jot to lenders – your record follows you to your address, and the previous occupant takes his or her own along with them.
Fiction: Those you share an address with can affect your credit rating
Fact: If you have no shared financial responsibilities with a person, they can’t affect your rating even if you live together
It’s true that up until a few years ago, lenders took into account the credit reports of others living at your address when assessing your rating. However, these days it has no bearing on your ability to obtain credit as long as you have no joint financial responsibilities.
Fiction: Credit reference agencies decide how you “score”
Fact: Credit reference agencies collate information, but the decision belongs to the lender
Many people believe that credit referencing agencies hold the power over whether you’re granted credit – but it’s simply not so. These agencies collate the information on credit contracts you’ve had alongside your personal data, and keep hold of it in your personal report. They don’t decide your credit rating, they provide lenders with all the criteria to do so.
Fiction: Someone, somewhere holds a credit blacklist
Fact: No such list exists, and “red-lining” does not happen
The idea of a credit blacklist is a popular myth, but in truth it is just that. Agencies don’t rule out whole geographical areas (or “red-line”) and they also do not take into account gender, religion, race or ethnicity.
Fiction: Your credit rating is absolute – one set figure to fit all applications
Fact: You have more than one credit rating
Your credit rating is subject to all sorts of changes, which can depend on the lender assessing it, the product you’re applying for, and most importantly, your circumstances at the time of your application. Lenders use their own equations for working out a credit score, which differ between banks and between types of product.
Your circumstances are the changes that you can control – for example lapses in payments can bring your score down for every lender, and paying off debt can raise it across the board.
Fiction: A spotless credit-free record means credit will be easy to come by
Fact: If you have no proven record of credit, lenders may not lend to you now
Although it seems logical to assume that those who’ve never needed credit may be well-placed to repay it now, a lender actually prefers to see a record of promptly repaid debt. This demonstration of your money-management shows clearly on your credit report, whereas your long term in-credit banking history does not.
With no evidence that you manage borrowing well, lenders may turn you down. To build a credit history lenders love, borrow and repay sensibly to demonstrate your reliability.
Fiction: My credit report just features financial commitments I have and have had in the past
Fact: Not only is your credit report a history of your borrowing, it contains footprints of any credit applications
When you apply for any type of credit, the potential lender searches your credit history to assess your suitability. Every time you do this, a footprint is left on your report. Several footprints on a credit report can lead lenders to think you are desperate for finance, not managing debt well, or even that some fraudulent activity is happening.
To prevent this it’s always best to ask for a quotation and specify you don’t want to make a full application.
Fiction: A pristine credit history means the whole world of credit is open to you
Fact: Your profile may matter to a lender more than your actual score
Many lenders aim to do business with a certain type of consumer, for example women, home-owners, or the over 50s. If you apply to borrow from one of these companies, you may find that you’re declined not on the basis of your credit score, but on your profile. For this reason it’s a good idea to select lenders carefully and with an eye for which best suits you.
Fact: Lenders will check you are who you say you are, so register at your address
An important fact that some people don’t know is that lenders use the electoral register to verify identities: registering to vote from your residence is the best official way to acknowledge you live there.
Lenders like stability, and so whether you vote or not, establishing yourself as official resident at your home allows them to track where and when you’ve changed location. You can easily register to vote with your local council.
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