Article by Kirstie Day - 30th December 2019

10 Credit Myths Busted

Credit checks are an integral part of modern life: from buying a house or car to applying for a new job or passing a tenancy check, your Credit Report is remarkably versatile. But considering the important role Credit Reports can play, there are still a number of popular myths surrounding them. We’ll look at ten misconceptions to point you in the right direction.

All agencies hold the same information - False

There are three Credit Reference Agencies (CRAs) in the UK - namely Equifax, Experian, and TransUnion. Lenders, banks, and mobile phone providers (to name just a few) share information with these CRAs, typically via monthly updates, which is then made visible to other companies for their own credit checking process. This sharing of information is based on the principle of reciprocity. Basically, by sharing information about their own customers, these organisations are then able to access data on applicants, in order to make more informed lending decisions.

As a result, a Credit Report obtained from one CRA can differ to that held by another. Because the CRAs do not share information with each other, any organisation performing a credit check would only be able to see the information held by the CRA (or CRAs) that it searches.

If you haven’t already, you can view your Multi Agency Credit Report with checkmyfile, which includes all data from the three Credit Reference Agencies at once. Try us free for 30 days, then just £14.99 monthly, which you can cancel at any time without fuss online, or by freephone, or email.

Checking your report harms your credit score - False

One common misconception in the UK is that checking your own Credit Report will in some way count against you and damage your Credit Score. The good news is… it doesn’t!

It’s true that whenever an organisation searches your Credit Report it leaves a Search Footprint, which will be visible to you and some lenders, but the presence of these markers alone won’t harm your score. Depending on the reason for the search, for example, whether it’s an application for credit or a simple ID check, the type of search will vary. Searches can only really harm your Credit Rating if you were to make many credit applications in a very short space of time, which some lenders could interpret as a sign of desperation.

When you look at your own Credit Report an audit search is created. This is only seen by yourself and the CRA so you know when your information has been viewed.

The decision to lend or not is made by Credit Reference Agencies - False

When you apply for credit, a lender will search your details with one or more Credit Reference Agency in order to obtain the information held on your Credit Report. Each lender then applies their own lending criteria to the data and (in most cases) uses automated credit scoring to determine whether or not to accept an application.

The decision to lend to you is entirely down to the lender alone; the Credit Reference Agencies only provide the data and have no say in the outcome of your application.

It’s worth remembering that the information held by the Credit Reference Agencies is taken from a number of different sources including lenders, courts and local councils, and CRAs do not ‘create’ any information themselves.

Having no loans or credit card in the past means a great Credit Score - False

Many people believe that if they have never borrowed, it proves they have never needed to be in debt and so should have an excellent Credit Score.

This is not the case. Without a Credit History on which to base a decision, lenders are likely to be more reluctant to approve an application, as they don’t have any evidence of how you have maintained your credit agreements in the past. Your Credit History is often the best indicator of how you are likely to manage credit in the future.

A non-existent or limited Credit History will therefore likely result in a lower Credit Score.

A bad credit score will haunt you forever - False

If you’re in the position where you have negative information on your Credit Report (even if it’s just a single missed payment), you can rest assured that this will not remain until the end of time.

Repayment information on your Credit Report will be removed after a set time period – for closed accounts, defaulted entries and court information, this is six years. Once this period has elapsed, the entries are typically removed by the CRAs within one calendar month.

Insolvency records such as bankruptcy will also remain on a Credit Report for a period of six years but will only be removed if marked as ‘Discharged’.

Whilst serious arrears and other negative information will almost certainly harm your ability to get credit, the impact that they have should diminish over time, especially if other credit accounts are well maintained. Once all negative information has been removed, it’s possible for your Credit Score to jump up quite considerably.

Closing accounts with late payments increases your score - False

Some people believe that they can increase their Credit Rating by closing down agreements that have late payments recorded against them, but this is a common misconception. Even if an account is closed, it will still be reported for a period of six years and will be visible to any lender that searches you.

Closing accounts that you no longer use could help an application in another way, though. Lenders could be reluctant to grant credit if you hold unused or ‘dormant’ accounts with large credit limits. By reducing the amount of available credit you have prior to applying, you could in theory make yourself less of a risk to lend to.

Being wealthy will result in a higher score - False

While you are asked about your salary information as part of a credit application, this is to reassure lenders that your monthly income is high enough to cover any monthly repayments and to help set an appropriate credit limit, once other outgoings have been taken into account.

Your salary information is never reported to Credit Reference Agencies and as a result does not form part of a credit scoring assessment.

‘Wealth’ in general is not reported by Credit Reference Agencies and so it’s quite possible to be cash-rich but have a poor credit rating and find it difficult to obtain credit.

Just because you’ve got a healthy bank balance, doesn’t mean you’ll be a responsible borrower, so lenders apply the same scoring criteria to everyone.

Previous occupants at your address can affect your own rating - False

When you move into a new property, one of the last things you want to worry about is previous occupants having left unpaid debts registered at the address. Although it’s undoubtedly annoying and can be worrying, it’s not something to lose sleep over - someone else’s debt is exactly that: theirs and theirs alone.

Even if debt collectors turn up on the doorstep, you’ve got nothing to worry about if the person they’re after no longer lives there and isn’t financially associated to you - just follow our steps on how to deal with debt collectors.

Paying a default means it will be removed immediately - False

Unless you pay within 14 days of receiving a Default Notice, a default will remain on your Credit Report for six years regardless of whether the full amount has been paid or not.

Although a lender will be able to see that the balance has been paid in full (and as a result you may look slightly more appealing to potential lenders), many lenders see the presence of a default in the first place as reason enough to not offer you credit.

Credit information is based on individuals, not their addresses.

I can’t get credit because I’m on a Blacklist - False

One of the most common myths surrounding Credit Reporting concerns address blacklists and being declined if you live in a certain area. This is so widespread that there are all sorts of myths surrounding blacklists alone.

It is vital to remember that there is no such thing as an address blacklist. Lenders will assess your application using the data held on your Credit Report, including payment history, Electoral Roll information and any court or insolvency records held by the Registry Trust and Insolvency Service. Simply put, there’s no such thing as a blacklist.

The fact of the matter is that until you check your Credit Report, you have no idea what may or may not be affecting your ability to get credit. If you haven’t already, you can try checkmyfile free for 30 days, then for just £14.99 a month afterwards, which you can cancel online at any time.

Updated 30/12/2019 by Sam Griffin

The UK's First Provider Of Online Credit Reports

Launched 25 Years, 35 Million Credit Scores & 8 Million Credit Reports Ago

The UK's First Provider Of Online Credit Reports

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