Fact or myth? Test your credit rating knowledge
By Helen Fowler
If you are confused about credit reports, you are far from alone. Many Brits have misguided information as to what affects their credit rating. To shed some light on this opaque area, we asked credit report experts to clear up common questions and misconceptions about credit reports. See if you can tell which of these are facts and which are myths. Then check to see what the experts say.
1. Credit reports show when
credit has been refused?
MYTH. Agencies do record when a lender looks at a prospective customer's information. This "footprint" shows the date of the check, name of the organisation making it and the type of credit requested.
"[But] credit reference agencies are not told which credit applications are successful and which are not," says James Jones, head of consumer affairs at Experian.
2. Information about the previous occupants of your home can affect your
MYTH. Lenders only carry out credit checks on people, not addresses.
"When you apply for credit, the lender will only see credit information about you and anyone to whom you are financially linked," says Jones. So it doesn't matter if you bought your house from ne'er-do-wells who have since left the country.
3. Shopping around for credit
can affect your standing?
FACT. Applying for an abnormally high number of cards could damage your standing. Each time you make an application for credit, it goes on your credit report, where it will stay for about a year. Lenders can see how many times you've applied for credit in the past year. However, checking your own credit report does not harm your credit-worthiness, nor does asking for a quote (distinct from a formal application) if you just want to check out prices.
4. Adverse information can be removed from your credit report for a fee?
MYTH. Be wary of any company promising to "repair" your credit or remove debts from your report. So-called credit repair firms may be a front for a loan company.
"If information on a credit report [should] be altered or removed because it's wrong, the credit reference agency will do this for free," says Jones. If the information is accurate, but needs an explanation, the credit reference agency will help you add a statement to your report without a charge.
5. Being on the electoral roll makes no difference to my credit rating?
MYTH. "This is one of the easiest ways to improve how you're rated," says Jones. "It lets lenders corroborate your address and is a sign of stability."
More than half of participants in a 2012 Experian survey thought being listed on the electoral roll made no difference to their credit rating. Contact your local council to check if you're enrolled.
6. Being arrested or having a criminal record will harm your rating?
MYTH. This sort of information is not on a credit report. You could have robbed the Bank of England, absconded with millions and be living off the proceeds -- credit companies would not take that into account.
7. Credit reference agencies hold a blacklist of people or properties?
MYTH. Conspiracy theorists can relax: "There is no such thing as a ‘credit blacklist,'" says Jones.
8. People have a single credit rating that all lenders see and use?
MYTH. Each lender uses its own criteria to calculate a customer's credit score every time they apply for credit, and the scoring systems can differ widely. Systems give points to different pieces of information on an application and credit report, based on how an applicant has behaved in the past and their current situation.
9. Missing a credit card or mortgage payment will harm your score?
FACT. Few things are more harmful than evidence that you don't always make your payments. Missing one or two may not make too much difference, but if it looks like regular behaviour, lenders will shun you. And remember that missed payments stay on your account for six years -- you could be storing up problems for the future.
10. Having several cards will harm how you're rated?
MYTH. "It comes down to how you use them," says Jones. "If you're struggling to juggle payments, lenders will see this. But if you're using less than 50% of your available balance, and can afford payments and are making them on time, these are signs of someone who can sensibly manage credit."
It's often better to split a balance between several cards than to have one card with a large balance, says Jones.
Published: 18 December 2013
- The fastest route to a high credit score – Like most good things, you can't get high credit overnight. But you can do some things to fast-track your path to a prime score ...
- Clearing up confusion over credit reports, scores – Many UK consumers are confused about their credit reports, and many have a few misconceptions in common. Here are a few confusing areas, cleared up ...
- Why and how to issue a notice of disassociation – If you've ever shared finances with someone, you're financially associated. That relationship could negatively affect your credit, so here's how to get a "financial divorce" ...