Dispelling credit rating myths

Dispelling credit rating myths

Often I have listened to clients say ‘my credit rating is excellent’ or ‘my rating is 999’ as if it means something. Unlike in the US, here in good old UK there is no such thing as a credit rating.

In the UK lenders will look to credit reference agencies such as Experian, Equifax and Callcredit to provide a history and insight into how someone conducts their credit agreements, but this is just a guide, it is not the sole deciding factor in whether credit is granted or refused. That is the first myth dispelled.

So now let me take you through the other most common myths around credit ratings.

Previous occupants at my address affect my rating

Afraid not; credit reports are driven by name, date of birth and address. Add to this that often a debit card is used to match you to the correct profile then who lived where previously doesn’t matter. If you are financially tied to the previous occupant, as may be the case with marital disputes, then there may be a connection. Even then, the record is about you personally. Lenders are not interested in who previously lived at your address.

Past debts don’t count

Yes they do. A credit report is a record of what has happened surrounding your conduct with lenders over a set period of time, typically 6 years. This period is considered to be sufficient to get an idea of what is happening at the moment. Many lenders will only look at the last 2 or 3 years, but the records will show up to 6 years.

It is good not to owe anything

I wish that was me, but alas. In a way it is good because you are liquid and not up to your eyeballs in debt, however remember that a lender wants to see experience of being able to repay your loans, no experience means nothing to go on which can mean it working against you. If you have a credit card which is repaid every month then great, that is the best way to be. The myth that repaying cards in full each month lowers your score is a fallacy, it doesn’t. It shows that you use credit and choose to repay in full, it also means the credit extended to you is not being fully used, this shows that you are not reliant on credit to survive which unsurprisingly lenders quite like.

I’m on a blacklist

No, because they don’t exist. You may have poor credit but you are not on a blacklist. The blacklist thinking is as much a part of conspiracy as whether NASA really landed on the moon or what really happened on the grassy knoll on 22nd November 1963.

It doesn’t matter how many credit accounts you have

This can often seem the case when you come across someone with a wallet of different cards. Whilst it doesn’t really matter how many credit accounts you have it is important to manage the total level of debt versus the overall credit limit. Try to keep your cards within 25% of their limit total as this shows that you use and repay, it also shows you are not completely reliant on credit to live. Do be aware that whilst there are loads of credit cards in the UK there are only a finite number of actual card providers, some card companies will decline you because you already have an account with them but on a card with a different face to it so be careful.

What to do next

Do keep an eye on your credit reports. Experian and Equifax both offer a free trial which enables you to get your report. In my opinion the Equifax option is more detailed but a little less user friendly, however if you want to know everything then it is probably the better option.

The most common reason for credit being declined is that the wrong information is being used by the lender. Mobile phone companies (yes the ‘lend’ because your contract includes buying the phone) are susceptible to this, something as small as taking the wrong debit card can cause you to be declined. If you are ever turned down unexpectedly then look at your report then check what information the lender has used, normally that is where the problem sits.

By Dave Farmer

Dave Farmer is founder of the award winning commercial finance specialist Lime Consultancy. Based in Sussex Lime Consultancy provide businesses with access to finance, funding and lending solutions. Lime Consultancy can be contacted on 01293 541333 or direct via the website.

 

2015-09-03T16:20:10+01:00