Recently, there has been much written in the papers about increasing levels of people being turned down for credit for a number of reasons, leading to confusion about credit ratings. So, here at MoneyTowers.com, we have put together a list of the top five facts and fictions about credit ratings.

Five Credit Rating Facts

1. Track Record
You might think that having no credit history means that lenders will like you and this isn’t necessarily the case. Having a track record means that lenders can evaluate whether you are a good risk or not therefore you may stand a better chance of getting credit if you already have some form of credit, perhaps in the form of a credit card or mobile phone account. If you have credit which has been well managed over a period of time, it is likely lenders will see you in a more positive light.

2. Amount of credit
Your credit report will show all the credit you have, along with outstanding balances. If lenders believe that you have too much credit already and that you are becoming overstretched, they will be less likely to give you even more credit. If you have a lot of credit accounts (such as credit cards) that you no longer use, pay them off and close them down.

3. Number of Applications
Your credit report will show whenever a lender has done a search on you when you have applied to take out credit. If there are a high number of searches over a short period of time, lenders will worry that you are desperate for money, or something fraudulent is happening therefore it is important that you don’t apply for too many cards in a short space of time.

4. Payment History
Payment history is important because it shows how reliable a customer you were. If you have a lot of missed payments or bad debts, lenders will not be as willing to lend, and if they do lend, it might be at a poor rate. Missed repayments will stay on your credit report for at least 36 months. CCJs, IVAs and bankruptcies will remain on your credit report for six years. This means that bad debts will affect your credit rating for years to come.

If there are special circumstances applicable such as a long-term illness, you are able to add a note to your credit report which future lenders may take note of.

5. Voting
It is important that you are registered to vote at your current address as this helps to protect against fraud. If you are not registered to vote at your current address, lenders may ask for proof of residence or they may even turn you down.

Five Credit Rating Myths

1. Previous Occupants
Previous occupants will not affect your current rating. Lenders are only concerned with your own personal debts and how you are coping with them.

2. Family and Friends
Family and friends, even if you are living at the same address, will not have any bearing on your credit rating unless you share a financial connection such as you have a joint account. In this case, the lender may look at their credit history as well as yours as their circumstances may affect the way you service your debts.

3. It is the credit agency’s decision
The credit reference agency does not decide whether you get credit or not – it is up to the lender. Credit reference agencies merely collate information on your debts and give details of your debts to registered and approved organisations only.

4. Credit Blacklists
There are no such things as credit blacklists – and there are no such things as areas where lenders will not lend. Your credit score does not take into account your gender, religion or ethnic origin – it merely details your debts and how well you service them. If you have a poor credit report, it is likely that many lenders will turn you down however there is no ‘black list’ that is circulated between them.

5. Poor credit history means poor credit future
One bad credit score will not sentence you to a poor credit report for ever more! With good management, you can boost your credit report rating and repair it over the years. Also, lenders have their own criteria for lending – and these criteria differ from lender to lender and from product to product. This means that although one lender may turn you down, there may be others who can help.

If you are interested in learning more about your credit report, including details of how to obtain your credit scores, please click here.

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