10th July 2015

Top Credit Rating Myths 

The other day I had a client tell me that their credit rating was excellent, that it is 999 and as good as it can get, all as if it meant something. However, here in the good old UK there is no such thing as a credit rating. 

In the UK lenders (and any provider of credit) will look to credit reference agencies such as Experian, Equifax and Callcredit to provide an insight into how a person services their credit agreements, how well they repay and how well they keep to the agreement. 

It is not however the sole deciding factor in whether credit is granted or refused. That is a decision made by the lender, not the credit reference agency. First myth dispelled. 

With that one dealt with, let me take you through the other most common myths around credit ratings. 

Previous Occupants At My Address Affect My Rating 

Erm, no. Credit reports are individual, they are driven by name, date of birth and address. Usually a debit card is used to match you to the correct profile which verifies against the voters roll, so who lived where previously doesn’t matter. 

Most lenders will look at financial connections, so your partner may matter. This is secondary with the rationale being many debts or liabilities are shared. Beware what your name is attached to, but previous occupants don’t matter. 

Past Debts Don’t Count 

Am afraid that is not the case. Typically a credit reference agency will hold up to 6 years history of you. 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. 

If you have defaulted in this period, even if you have since bought these debt up to date, will still show on your report. 

It Is Good Not To Owe Anything 

How I wish I owed nothing, but not to be at the moment. Not having debt can mean that you have more cash to repay new commitments, but for the lender it doesn’t provide a track record and your attitude to credit is largely unproven. The chances are you will get credit but maybe not on the terms you really wanted. 

There is a connected myth that repaying all your cards in full each month lowers your score, it’s 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 and unsurprisingly lenders quite like this. 

I’m On A Blacklist 

No such thing as a blacklist, not unless you are watching the latest Bourne film. Blacklists don’t exist, your credit history does and it may be this that acts against you but as for a secret list of those for whom credit is banned? Not real. 

It Doesn’t Matter How Many Credit Accounts You Have 

Yes and no, decisive answer that one. Whilst it doesn’t really matter how many credit accounts you have it is more important to focus on the total level of debt versus the overall credit limits sanctioned. 

This is about using the credit you have without using it to the max or becoming overly reliant on it. Try to keep your cards to around 25% of their limit total as this shows that you use and repay without taking advantage of every penny on offer. 

On this one, 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 a card with them but through a different brand, bear it in mind and be careful. 

What To Do Next 

Keep an eye on your credit report, check with credit reference agencies such as Experian and Equifax who both offer a free trial to enable you to see your report and check through it at no cost. The Equifax option is more detailed but the system can be a little less user friendly, however if you want to know everything Equifax is probably the better option. 

To finish, the most common reason why credit is declined is due to the wrong information being used by the lender. Before you apply don’t assume that the information a lender holds is correct, get them to tell you what they think they know. Mobile phone companies (yes they ‘lend’ because your contract includes buying the phone not just the airtime) are classics for this. Something as small as taking the wrong debit card expiry date can cause you to be declined, or a missing middle initial. 

If you are ever turned down unexpectedly then download your credit report, check it, look at what recent searches were carried out and what information the lender has used, normally you will find no evidence of a search, meaning the lender has not used the right information. 

By Dave Farmer

Dave Farmer is found 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.

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