From the existence of credit blacklists to living in the house of a former debtor, there are many misconceptions which are hindering people from improving their financial health.
According to credit reference agency, Experian, there are a number of myths around how credit scores work which people have incorrectly bought into. As such it said more education is needed to increase financial confidence – particularly as we face a cost-of-living crisis.
A recent study by Experian found nearly three quarters of people falsely believed a credit blacklist existed.
Meanwhile, over a quarter incorrectly thought credit reference agencies decided whether people were accepted for credit cards.
People were also unfamiliar with factors which impacted their credit score. Indeed, respondents believed checking your own credit report (14%) and a previous occupant of their address with a poor credit history (34%) could negatively impact it.
Jose Luiz Rossi, managing director of Experian UK&I, said: “Although the UK is a very well-educated population, there are still a lot of people who lack confidence when it comes to managing their finances, and credit is a key part of that.
“As we emerge from the pandemic, with a cost-of-living crisis confronting us, credit education has never been more important.
“Especially when you look at the results of our consumer poll and see, for example, 73% of respondents thinking there is a mysterious ‘credit blacklist’ that prevents them from getting credit. We have a duty to dispel these myths and promote consumer confidence with credit.”
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The six common credit myths
Experian has revealed the six most common credit misconceptions to emerge from its research and uncovers the truth behind them.
There’s a credit blacklist
Luckily there’s no such thing as a blacklist. Lenders make decisions based on the information on your credit report, your application form details and any account information they already have.
If you do have a history of poor borrowing, then you could still be accepted but you’re likely to be offered lower credit limits and higher interest rates.
Credit reference agencies make lending decisions
A credit reference agency provides information from your credit report for a lender to decide whether to accept or refuse your credit application.
Other sources are also used, including information provided on the application form and information the lender may already have with you if you’re an existing customer.
If you get refused credit, it’s best to ask the lender why, as only they know the reason.
Being in a relationship links your finances
Being in a relationship doesn’t mean your credit report, or finances, are linked together. The only way to link your credit reports is if you’ve applied for joint credit together in the past, for example for a bank account, loan, or mortgage.
If you have previously taken out credit with someone, but don’t share any joint accounts now, you can ask for a financial disassociation with all the credit reference agencies.
Previous house occupants affect your score
This is a common myth, especially when people are living in rented accommodation. The previous occupants of your address do not have any impact on your finances or your credit report.
There may still be letters that come to the address, so all you need to do is write on the front they don’t live there and stick them back in the post box.
Checking your credit report affects your score
Checking your credit report doesn’t affect your score. It will show on your report as a soft search each time you check, but this is only seen by you and nobody else.
You can check your Experian Credit Report and score as often as you like, which is usually a good idea before you apply for credit.
I have one credit score
There is no universal credit score. Each credit reference agency will give you a different score on a different scale. Of course, the higher this is with each agency the better.
When you apply for credit, lenders don’t use this score. They use your credit report information, your application details and any recent history of previous accounts with them to calculate an overall score for you.
It’s this final score that helps them decide whether to accept you or not, and sometimes what the rate will be.
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