There are a surprising number of myths surrounding the things that affect your credit score. Understanding the truth can help you to improve your current rating, prevent problems occurring or simply allow you to maintain the good score you have managed to build. Here is a look at some of the most common myths around.
Your Credit Rating Can Be Affected by Your Home’s Previous Occupants
This is not true, and you will not have anyone’s name on your personal credit report unless there is a financial connection between you and them. This connection could be a joint bank account or a mortgage. Your address will not define your credit rating, although lenders usually want to know about your previous addresses and may prefer to see some stability in your past. Your report will also be unaffected by anyone living with you at your address unless you share a financial connection with them, in which case their credit record can have an impact on your own.
Credit Reference Agencies Decide Who Can Borrow Money
People applying for debt consolidation loans, for example, will not be refused or granted loans by credit reference agencies. These agencies provide information, but it is the lenders who make the decision.
Debts from the Past Don’t Count
Yes, they do. Past mistakes, from missed payment to court judgements, bankruptcies and Individual Voluntary Arrangements (IVAs), could affect your credit score for a minimum of six years. Contrary to popular belief, however, your debts do not stay on record forever. Lenders use your credit record to establish your suitability for a loan, and so they do not care about the payments you missed two decades before. Your record is designed to highlight your recent financial position, which is why most information is only held for about six years.
New Borrowers Get the Pick of the Deals
People with nothing on their credit report can actually find it difficult to be accepted for a loan from many lenders. This is because it can be difficult to judge how reliable they will be. Many lenders would prefer to see a record of well-managed credit and a commitment to making repayments on time. It is also not true that paying back in full the money owed on your credit card can actually lower your score. In fact, the exact opposite is true, as this demonstrates that you can actually afford and manage any debt that you have.
Whilst many lenders would like to see evidence of effective credit management, having too many credit accounts can actually have a negative impact on your score, which is why it might be useful to get some debt consolidation tips if you find yourself in this position. This is because you may not seem like the best candidate for a loan or more credit if you have spent up to your limit on multiple credit cards, for example, even if you do make your repayments on time.
There Is a Credit Blacklist
There is no such thing as a credit blacklist, and your credit score has nothing to do with your gender, religion or ethnic origin. It is based solely on factors such as the amount of credit you currently have and your repayment history – not on your personal background.
Many lenders use a system of credit scoring to decide if you are eligible for a loan. It is a myth that each person has just one credit score. Each lender will use its own method to calculate your scores, and some of these will even use different calculations for different products.
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The only debt I have now is my mortgage, at 3.5% APR and real estate values appreciating at 7-8% per year, I’m good with carrying this debt! Developing a good credit history is important to start at a young age, unfortunately many college students get themselves into poor habits managing debt and this can effect their credit for many years!