Hello, hope everybody had a fab weekend. For those in the UK, I hope you made the most of the summer weather, here’s to hoping it will continue. Today’s post was inspired by a conversation with a close friend about credit and building your score. There seems to be so much confusion around credit scores, credit history, etc and what impacts them. So I have pulled together 10 credit score myths to help clear things up! Without further delay here they are.
Myth 1: My credit score is bad as the people who used to live here had bad credit.
Having someone with bad credit as the previous occupier of your residence will not reduce your score, in the same way that a financially successful one will not boost it. For someone to have an impact on your credit score you need to be financially linked (e.g. have a joint account, joint mortgage, etc). This principle applies to those who you live with whether that be family, partner/spouse, housemates.
The question has been raised on whether being jointly named on a bill constitutes a financial link, as more and more utility providers are sharing payment history with credit reference agencies. I haven’t seen any impact on my credit report from my time of house sharing but if you are particularly concerned reach out to the utility provider directly to understand what information they share.
Myth 2: Missing a payment is no big deal.
BIG MISTAKE! Missed repayments appear on your file for at least 6 years. Other lenders may hold this against you as it could suggest you’ll miss payments with them too. Continued avoidance of repayments can result in County Court Judgements (CCJs), which will appear on your file categorise you as a high risk borrower. The result being that any credit you are offered is much more expensive due to higher risk. So when you’re thinking of missing that credit card payment to fund a night out or a new purchase, just don’t!
Myth 3: I’ve never used credit before so lenders will think I’m a safe bet.
To the contrary, there is no evidence to support you being good borrower. Having no credit history actually works against you as lenders prefer to see that you’ve reliably managed some form of repayment in the past. Without a credit history your score is more than likely to be low, but the good thing is that there are steps you can take to remedy that.
Myth 4: I can’t get credit as I’ve been blacklisted.
There is no such thing as a credit blacklist in the UK. Each lender will have their own criteria for lending and will consider things such as your repayment history and any outstanding debts you may have.
Myth 5: I have 4 credit cards, a bank loan, car finance and mortgage. This will show lenders I’m a pro at managing credit.
What it will suggest to lenders is that you can’t manage without credit. You may be juggling now but you are one financial change away from a catastrophe. Stop the juggling and get a plan in place to pay down these debts immediately.
Myth 6: I’m scared to apply for a mortgage, they’ll probably reject me because of that one time I missed a credit card repayment in 2005.
Lenders use your credit history to get an understanding of your current financial position and recent financial habits. Therefore a missed payment that occurred over 10 years ago will not hold the same significance as one that occurred last month.
Myth 7: You shouldn’t check your credit score too often as it will lower your credit score.
This isn’t true. Looking at your credit score doesn’t impact your credit history. This appears to be a common misconception confused with the fact that you shouldn’t make too many applications for credit in a short period of time as it implies that you are desperate for credit.
You should regularly check your credit files to ensure that there aren’t any errors that could impact your ability to borrow in the future. Not only that, some jobs require you to undergo a credit check as part of the recruitment process so it’s good to make sure things are in good shape
Myth 8: I’m trying to boost my credit score as I’ve had limited credit in the past. I understand the bigger the balance on my card, the greater my score will be.
No, no, no! As mentioned before, lenders want to understand your habits and ability when it comes to repaying debt. You could essentially put £10 on a card and pay it off in full – though the amount isn’t big you are using credit and therefore building up a history, whilst showing that you can responsibly make repayments. If anything holding large balances will make lenders question your ability to make repayments on any further credit given. My thoughts would be that if you have a large balance outstanding it may not be in your best interests to apply for more credit but instead you should focus on clearing your existing debt.
Myth 9: Moving credit card balances around will help hide outstanding debt.
Each card you have will appear on your credit report so moving balances around will not result in outstanding balances being hidden.
Myth 10: A poor credit score can never be rebuilt
A poor credit score indicates a poor credit history, which often makes it more difficult to get credit. However all hope is not lost. There are a number of “credit rebuild cards” , however the rates on these tend to be hideous. They are to be approached with caution or avoided if you haven’t addressed the underlying issues behind your debt problems.
Rebuilding your credit score takes time, you can start by ensuring that you make any repayments on time. As you continue this behaviour for 6 months, 1 year and so on you will start to notice improvements. There is no quick fix so it will require patience.
Want to check your credit score…Here’s how
The three main credit reference agencies are Experian, Equifax and Noddle in the UK. Equifax and Experian have a 30 day free trial, which will require you to register with a card. At the end of the free trial you are automatically billed.
If you wish to discontinue the service be sure to put a reminder in your phone to cancel. Noddle is free of charge, so there is no excuse for not knowing what credit has been listed against your name and your repayment history. Check out what information each holds against your name and be sure to look out for any errors (you can ask to have these corrected). Where relevant add a Notice of Correction to explain any exceptional circumstances behind something of your credit report.
As you all will know from my prior posts on debt I’m not an advocate of holding unnecessary debt. However I appreciate that in this day and age most people, who would like to buy a home, need a mortgage. A good credit score is therefore essential.
What myths have you heard in relation to credit scores/history? Do you regularly check your credit report? Be sure to comment below or contact me via Twitter or Facebook. Whatever your circumstances don’t leave your credit score to chance, take action today.
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