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Modern life depends on our ability to borrow - but what we think contributes to that crucial credit rating and what actually
matters are two very different things.
Half of us don't really understand what a credit rating is and how it affects our ability to borrow. A third of us have been
refused a loan at some point and 40 per cent of this group don't know why.
This simple guide separates credit fact from fiction, so you know what really matters to lenders - and what you don't need to
worry about.
Myth 1: Previous occupants at my home affect my credit rating
This is untrue - but 71 per cent of you believe it. Lenders are interested only in your ability to repay them, so they look at
your personal circumstances. If you've recently moved, they will want to know your previous addresses, generally for the
last three years, so that they can check back. It is a good idea to register to vote, wherever you live. That's one of the factors
they do take into account.
Myth 2: Family and friends living at my address could harm my credit rating
Until a few years ago, lenders checked the credit reports of other people living at your address. They could then take their
position into account when deciding whether to offer you credit - and 63 per cent of people wrongly think that's still the
case. Instead, your current credit report contains a section listing your financial associates - people with whom you share a
joint account, such as a mortgage. Lenders look at the credit reports of these people when they assess you. If your associate
has a poor credit report, it could affect your chances - even if your own record is spotless. To make sure you don't get
penalised, it's important to check that the list of financial associates in your credit report is correct - and get them to check
their own reports before you make an application.
Myth 3: Credit reference agencies decide your credit rating
No, they don't - but 53 per cent of people think they do and also make the decision whether or not to lend to you. Individual
lenders make these judgments. Credit reference agencies simply collate the information held in credit reports and keep it
securely. It's important to check regularly that your credit report is up to date and accurately reflects your circumstances, or
your credit rating could be affected. Myth 4: Your credit rating is poor because you're on a blacklist
There's no such thing as a credit blacklist, even though 41 per cent of you blame this if you're refused credit. Your credit
score does not take account of factors such as the area where you live, gender, religion, race or ethnic origin. What counts is
continuity, which is why your credit report shows years of your credit history and application forms often ask for your
previous address. Lenders want to know how well you have managed your affairs over time, because that helps them to
predict how you may behave in the future.
Myth 5: You have only one credit rating
You can have many different credit ratings, depending on who you apply to, what you apply for and your circumstances at
the time. Still, 29 per cent of you think that you have a single score that applies to every type of credit, from a store card to a
mortgage. Every lender uses a slightly different equation to calculate a credit score - some even use different versions for
different products. Your credit rating also changes when your circumstances change. For example, paying off a debt could
improve your score, while missing a series of repayments could damage it.
Myth 6: Past debts don't count
Yes, they do, even if you're financially fit today. You're pretty realistic about this - just 12 per cent of you believe that old
debts don't matter. Missed repayments stay on your credit report for 36 months, a court judgment is there for six years. A
discharged bankruptcy stays on record for at least six years but a bankruptcy restrictions order is there for as long as 15
years. Lenders see these and mark you down, because they fear you may not honour your obligations. Don't panic - you may
be able to take remedial action by adding an explanation of the circumstances surrounding any problems to your credit
report. Lenders will see this note and can take it into account.
(Disclaimer: All information is copyright Canvasse Opinion on behalf of Experian, and used by Identity Alarm with expressed permission)
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