Think you know everything you need to know about borrowing and credit? Think again. Many of us are surprisingly uninformed about the information that goes into deciding who gets to borrow what. We’ve debunked some of the more pervasive credit myths and collected a few of the lesser-known but more important facts to help you get your borrowing basics straight.
1. Previous occupants of your home have no affect on your credit rating
Pub bores often put this nonsense about and a recent survey showed that 71% of people believe it, but it’s completely untrue. The previous occupant of your house or flat could have been a millionaire or a bankrupt but that makes no difference to lenders at all.
2. Family and friends living at your address cannot harm your credit rating…
Until a few years ago, lenders checked the credit reports of others living at your address, taking their finances into account when deciding whether to offer you credit. This is no longer the case. The people with whom you share an address (but no financial responsibilities) have no bearing on your ability to obtain credit. So for the 63% of you who think they do, they don’t.
3. … But your partner or financial associates can
The people with whom you share financial responsibilities, such as joint accounts, credit cards and mortgages, are referred to as your financial associates. Their names appear on your credit report and lenders will check if they have had any credit problems before deciding whether or not to offer credit to you.
This means you are strongly advised to take a look at the financial history of anyone with whom you enter into a shared financial responsibility, as their past will affect your future.
4. Credit reference agencies do not decide your credit rating
53% of you think they do, but they don’t. Credit reference agencies collate the information held in credit reports and hold it securely, but they don’t have anything to do with deciding your credit rating. Lenders do this, using the information held in your credit report and that submitted by you in your application form.
5. There is no credit blacklist
A staggering 41% of you are convinced that someone, somewhere, holds a very long list of credit baddies. You’re all wrong.
Ruling out whole streets or estates, or ‘red-lining’, as it’s known, simply does not happen. And while we’re on it, your credit score does not take account of factors such as gender, religion, race or ethnic origin.
6. You have more than 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 you apply. Every lender uses a slightly different equation to calculate a credit score, and some 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.
7. You can be turned down for credit if you haven’t borrowed enough...
You’d think lenders would love a customer with no debts, but they actually rely on the details in your credit report to show them you make repayments on time. If you have no track record, they cannot tell how you might behave in future and could decline to lend to you as they have no evidence you manage credit well. The solution? Borrow wisely, repay on time and build yourself a nice little credit history.
8. … But you can also be turned down if you’ve applied too often
Every time you apply for credit, the lender dealing with your application makes a full search of your credit report. This leaves a search footprint on your report. Make enough applications and the profusion of search footprints could lead prospective lenders to think you are overstretching yourself, desperate for money, or even that fraudulent activity is taking place.
To avoid this problem, when applying for any kind of credit, specify that you want a quotation and make it clear that you are not making a full application. This will prevent unnecessary footprints from marking up your report.
9. Your profile may matter more than your score
Many lenders target specific groups of people – home owners, students, older people and so on. Regardless of how high your credit score is, if your profile doesn’t fit their template, you may find your application is turned down. To give your application the best chance at success, do your research before you apply and identify lenders who want to deal with people like you.
10. Your vote counts… sort of
From a credit perspective, it doesn’t matter if you vote or not, but it does matter that you are registered to vote, as lenders check local electoral registers to verify that you are who you say you are and live where you say you live. They also look for stability – ideally, that you’ve lived at the same address for some years. If they don't find your name at your address, they may make further checks or just turn you down.
If you’re not yet registered to vote, ask your local authority for a rolling registration form. This will enable you to register at your current address and de-register from any old ones.
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