Ten astonishing lies about credit ratings

Credit records can seem a bit confusing. Here, we expose the truth about 10 credit rating myths!

Recent research by credit information provider, Equifax, has revealed that one in three customers who applied for a credit card in the last year were refused credit due to having a poor credit rating. Results also show that a third of those who were declined had no idea why they were refused a new card.

Credit ratings can prove to be a tad confusing and it’s not always clear exactly what affects it – in other words, what can have a negative impact on it, and what can help to improve it. So here, I’m going to shed the light on ten biggest credit rating lies.

Checking my credit report will damage my credit rating

That's a lie! Checking your credit rating on a regular basis is a very sensible option and you don’t need to worry about leaving any ‘footprints’ behind if you do this. Because quite simply, you won’t. And this means checking your credit report won’t reduce your chances of being accepted for credit.

Checking your credit rating doesn’t have to cost a lot either. In fact, you can sign up for a free credit report from Experian. Just remember to cancel your membership before the 30-day trial period is up, to avoid being charged in the future.

Alternatively, you should be able to pick up a copy of your credit report for £2.

There’s a credit blacklist

That's a lie! There’s no such thing as a credit blacklist. Many people believe that somewhere there’s a list of people who should never be lent money – ever.

But this isn’t true. Credit agencies don’t decide your credit rating – whether or not you can borrow money is up to the lender involved, and some will say yes when others will say no. They simply look at the information on a credit report and then decide whether they will lend money or not.

Credit reference agencies only hold factual information and they don’t rule out whole geographical areas. They also don’t take into account your gender, race, political beliefs, or religion when you’re applying for credit.

My credit rating could be affected by the previous home owners

That's a lie! If the people who previously owned your home were in mountains of debt, your credit record will not be impacted. Lenders only carry out credit checks on individuals, not addresses. This means the lender will only see information about you.

Your record follows you to your address, and the previous occupants take theirs along with them.

My credit rating could be affected by who I live with

That's a lie!  Similarly, those who live with you have no impact on your credit report – unless you are financially linked to them. So, for example, if you share a mortgage or bank account with someone, your credit history will be connected. This is the case even if you don't live at the same address.

However, if there are no financial ties, your flatmates’ credit records will not affect yours.

If I get refused credit, it will show up on my report

That's a lie! Credit agencies won’t be told whether you have been accepted or refused for credit, so this won’t be recorded on your credit report.

The fact that a lender looked at your credit record (with your permission) will be recorded and this ‘footprint’ will show the date of the credit check, the name of the organisation you applied to, and the type of credit you applied for. But it won’t show how successful your application was.

I only have one credit rating

That's a lie! You don’t have a single credit score or credit rating. Lenders use their own equations for working out a credit score and this differs between banks and between types of products. So you could have one score for a credit card application and a completely different one for a loan application, for example.

Lenders’ scoring systems can vary widely, giving points to all of the different aspects of information on your report and your application. This scoring system is based on how you’ve handled credit in the past, as well as on information about your situation and whether or not you can afford the credit you've applied for.

I’ve never applied for credit so my credit record is perfect

That's a lie! You wouldn’t be alone in thinking that if you’ve never had to apply for credit, your credit rating will be spotless and lenders will be jumping at the chance to let you borrow money. However, lenders actually prefer to see a record of promptly repaid debt as this shows you can manage your borrowings well. Well-managed debt will show up on your credit report, but your long-term in-credit banking history will not.

So if there’s no record that you’ve been able to borrow and pay money back on time, you may get turned down.

Having dormant accounts won’t affect my credit rating

That's a lie!  If you have a lot of unused credit on several accounts it makes sense to close some of them down, or ask for lower credit limits. This is likely to decrease lenders’ concerns that you could max out on all of this available credit and get into difficulties.

What’s more, having a lot of dormant accounts exposes you to fraud risk because you’re unlikely to notice if someone is using a credit card you haven't touched for months.

That said, some lenders will also look at your income when assessing affordability and if they see you can easily manage several credit products, they are unlikely to be concerned. However, if you’ve maxed out all your credit cards and you’re now applying for more credit, you may look desperate, and as a result, some lenders will be put off.

Overall, you’re better off keeping your borrowing to well within what you can afford and below your borrowing limits. You should also avoid excessive unused credit, and close dormant accounts.

Switching current accounts will affect my credit rating

That's a lie! When applying for a current account some lenders will ask how long you’ve been with your bank and build stability indicators such as this into their credit scoring. Some lenders may also ask you about how long you’ve been at your current address and in your job.

However, these are small factors and your credit scoring will take a whole range of other things into account. As a result, any impact of switching current accounts is likely to be very very small. So don’t let that stop you finding a better account!

Related how-to guide

Improve your credit rating

If you’re struggling to get hold of credit, find out how to increase your chances of getting accepted.

See the guide

Bad credit ratings are for life

That's a lie!  Generally, bad credit will stay on your personal credit file for about six years.

It is possible to rebuild your credit rating, so don’t think there’s nothing you can do about it. For a start, you should make sure you’re on the electoral roll. It’s also important to try and clear as much of your debt as possible and try not to max out on your credit. Finally, don’t ask for more credit than you can afford and don’t make multiple applications over a short period of time. 

For further tips, read 10 steps to a perfect credit record.

Just be aware of any company claiming it can repair your creditworthiness or remove debts from your credit report for a fee – these can often be very expensive and in return, you’ll get very little or no advice. So don’t fall for this.

If you are struggling with your finances, you can get good advice absolutely free! Read Get debt advice for free for more information.  

Don’t forget, if you're curious to know more about your credit rating, you can get a free credit report via lovemoney.com to help you work out exactly where you stand. Good luck.

More: Make your money last until payday | Eight tips to clear your credit card debts