Credit Rating Myths: Separating Fiction from Reality

Any practical, forward-thinking individual is well aware of the many benefits afforded by a good credit score and wants to take the relevant steps to ensure it remains healthy. You may think that a good credit score only becomes relevant when you need to obtain a mortgage, but in reality it impacts our financial lives in many more ways.

With poor credit, you might find it challenging to obtain any kind of loan, get a credit card, or even secure a mobile phone contract. On top of this, it might be difficult to find a landlord willing to take a gamble on you, due to concerns and doubts regarding your ability to pay regularly and reliably. In order to retain an ideal credit score, it is not only important to become knowledgeable on how to improve our scores, but it is equally integral that you know a credit score myth when you hear one. Below are a few debt fallacies that are so readily bandied about that, for some people, they have become fact.

Your address can be blacklisted

Some believe that the credit rating of previous occupants has some bearing on them, but this is simply untrue. It would be tremendously unfair if your own personal record was negatively impacted on by a bankrupt ex-tenant. Equally, it would be unjust if you benefitted from a wealthy former occupant. Unless you had, or have, a financial connection with the individuals in question, your credit report will remain unchanged.

It is best to avoid borrowing altogether

If you have never had a loan or a credit card, a lender is unable to determine how you are likely to behave in the future should they decide to grant you a loan. It is not possible to deem you a “safe bet” simply because you have avoided debt in the past. Unfortunately, a non-existent credit score is likely to result in loan rejections.

A good and steady way to build up your credit score is with a credit card. Use it regularly for purchases you know you can afford and arrange to have the balance automatically paid in full at the end of the month. This will demonstrate that you have the capacity to be reliable and responsible with money.

You will be forever stuck with items on your credit history report

The reality behind this myth is that unwise decisions made long ago have no bearing on an individual’s current behaviour. Your credit report is meant to help lenders get to grips with your current financial position, rather than your financial missteps from fifteen years ago. As such, most information regarding your credit history is wiped after approximately six years. This includes information regarding debt management options such as IVAs. This system explains why it is perfectly possible to recover from poor credit.

A rejected loan proposal deters other lenders

It is true that if a company performs a credit report on you, this is something that other lenders will be able to see. However, they will not be made aware of the outcome. Information regarding the name of the organisation, the type of credit you applied for and the date will be available but, in itself, this data isn’t indicative of very much. However, it is unadvisable that you apply for a large amount of loans in a short space of time, as this comes across as financially desperate.

You should destroy your unused credit cards

If you have a problem with overspending and you can’t trust yourself not to rack up unmanageable debt, this might be a good piece of advice. However, if you are able to retain credit cards, even if you are not using them, it will demonstrate to lenders that you are capable of showing restraint. As a result, they may be more inclined to increase your spending limit or give you a loan. It may also help your credit score if your credit limit far exceeds your regular spending limit.

About the author:

Yaakov Smith, a first class honours graduate of Oxford University, has almost twenty years’ experience developing and designing software. He is the CEO of Logican Solutions, a UK-based business management software company that serves to streamline processes and increase productivity. They offer a range of products, including solutions for claims management, debt management and property portfolio management.