December 18th, 2008 HIP-Consultant.co.uk Posted in Financial Products, Top Tips | 7 Comments »

As the financial climate tightens knowledge becomes power when it comes to securing the credit deals you want. The best start is by understanding the impact your credit history and rating has on the type of offer you may receive and whether you will receive an offer for credit at all.

Your credit report contains your full credit history. It details credit cards, loans, mortgages and other various credit accounts, your repayment track record and other information such as bad debts, Individual Voluntary Arrangements (IVAs) and bankruptcies. Lenders use this information, along with details from the application you submit to decide whether there’s a good chance that you’ll repay what you plan to borrow and will owe, so it’s vital to understand what items will and won’t influence them. You can see the information lenders see when deciding whether or not to give you credit. You can view a Free Experian Credit Report within a trial period

Here are the top 10 Credit Myths – and the reality behind them.

1. I maybe on a credit agencies’ blacklist

No, you couldn’t – they don’t exist. Your credit rating doesn’t take account of the area where you live, your race, ethnic origin, religion or gender. However, factors lenders do consider include your repayment history and how much you already owe. Essentially, they want to be sure that you aren’t taking on more debt and credit that you can comfortably manage.

2. Previous occupants of my address can affect my credit rating

Nowadays it makes no difference to your credit rating if the previous occupant of your home was a multi-millionaire or made bankrupt as long as you never shared a financial connection. Most lenders are only interested in your ability to repay them on time and in full. They much prefer to see stability and if you’ve recently moved they will almost certainly want to know your previous address(es), so they can refer back.

3. You can only have one credit score

Each individual lender uses its own method to formulate their credit scores and some choose to use a different formula for different credit products, such as mortgages, loans and credit cards. So it is possible that you could get three different credit scores if you made three seperate applications in a single day. Your credit history also changes over time as your personal circumstances change. For e.g. missing a few repayments on a loan or credit card could lower how you are scored, whilst paying off an existing debt as planned could give your rating a boost.

4. Past debts don’t count within my credit rating

Unfortunately for many, they do. Court judgments for non-payment of debts, Individual Voluntary Arrangements (IVAs) and bankruptcies stay on your credit report for at least six years. Even one missed repayment is recorded for at least 36 months. Lenders will see these and it may count against you because they could see it as an indicator that you will miss payments with them in the future too.

5. Credit reference agencies help make lending decisions

Credit reference agencies compile and hold your credit report securely; they don’t use the information to make lending decisions. Lenders use the credit report data to help make decisions and perhaps score your application, each using a unique set of criteria to make a decision. With CreditExpert you can see your Experian Credit Score, based on your current credit rating. This will give you a good indication of how lenders will see you. See the information lenders see.

6. It makes no difference how many credit accounts you have

Lenders want to be sure that you can afford the credit they provide you.

They prefer it if you do not already owe large amounts on multiple accounts. They may even take into account the amount you could borrow against your existing credit limits, so it’s sometimes best to close down unused accounts and limit the number of new applications you make. You are well advised not to fire off random credit applications as these will be registered on your credit report. Ask for quotations before you formally apply and these will only be seen by you on your credit report. If it looks as if you’re trying to borrow a lot in a short period of time, lenders may consider you are desperate for money or even suspect fraud.

7. If you have never borrowed and owe no money, you will get the best deals

You would think that someone with no history of debt or credit would be attractive to lenders though the reverse is often true. Lenders want you to have and see a history of making repayments on time and in full. If you have never borrowed or taken credit they have no way of knowing how you’ll make payments in the future and could even reject you. They would often rather see a credit report showing a few well managed loans or credit cards with regular, reliable repayments.

8. Repaying your credit cards in full depresses your credit score

This urban myth is also complete nonsense. Making repayments in full every month is likely to result in an improved credit score because it demonstrates you can afford your borrowings. You’re more likely to get a lower score if you make late payments and let interest and your total debt increase.

9. Friends and family living at my home can affect my credit rating

Unless you share a joint financial connection with any of them for example a mortgage friends and family will have no effect on your credit rating. If you do have a joint account or have made joint credit applications, their name will be listed in your credit report under Financial associations. When you apply for new credit, lenders may look at your financial associate’s credit report as well, as their circumstances may affect your ability to make repayments.

10. Items in your credit history stay on file forever

Your credit report is designed to give lenders a good picture of your recent and current position. They are not interested in seeing that a 40-year-old missed a few credit or store card repayments when they were 21, as it has no currentrelevance to his likely behaviour today. Most information about your credit history is therefore held for between three and six years.

By building a better understanding of your credit history it can succesfully help your access credit in the future. .

Over the coming weeks and months we will be further looking at means to lower your outgoings to ensure your financial stability in the current challenging financial climate.