Credit reports have been around in the UK’s financial landscape since the advent of the industrial revolution in 1842. However, there’s a lot of confusion about the kind of information they contain as well as the role they play in the applications of loans, credit cards as well as mortgages. If you’re keen on discovering the most common credit report misconceptions, look no further. Below is a list of the most common credit report myths.
1. A poor credit history translates to a credit blacklist
This myth is among the oldest and most common credit report myths in the UK and the global financial world as a whole. It is worth noting there is no single credit score that UK lenders use (or all other lenders for that matter) to decide if they will lend people or not. Instead, different lenders use different ways of evaluating the risks involved in lending individual customers. This simply means it is possible for one lender to accept a customer’s loan application while another lender rejects the same customer based on the same credit history. Having a bad credit history doesn’t, therefore, result in an automatic credit blacklist.
2. Credit reference agencies decide who gets loans
There has also been this misconception that credit reference agencies play a key role in deciding the outcome of credit applications. This couldn’t be further from the truth. The work of credit reference agencies is simply supplying lenders with credit information about different borrowers. Lenders ultimately decide who they want to offer loans based on the information supplied by credit reference agencies. They also consider any information they may have about borrowers as well as the information borrowers submit in their application.
3. Credit reference agencies have the same information about borrowers
Many people have also been tempted to think that UK’s main credit reference agencies namely; CallCredit, Experian and Equifax all have the same information about individual borrowers. This is not the case. Different credit reference agencies have slightly different credit information about borrowers. The slight differences are as a result of lenders sharing credit information with some (not all) credit agencies at any given time. Credit reference agencies also tend to use the same formula in a different way. As a result, credit scores and reports are rarely identical in all three of the main credit reference agencies.
4. Checking your credit report frequently damages your credit score
Many people also tend to believe that credit reference agencies penalise individuals who check their credit scores too often. This is a false belief. You can check your credit report/score as many times as possible without damaging your score. In fact, it is advisable to do so to make sure your credit report has the right information. Checking your credit score often also helps you to identify any fraudulent activity that may have taken place. You should only be worried about making too many loan applications instead since declined applications have an adverse effect on credit scores.
5. Credit reports retain information on missed payments indefinitely
Your credit report retains information on defaults for a maximum of 6 years after you have settled payments or defaulted. Most information i.e. account data including missed or late payments is removed after 6 years. It is, however, worth noting that most lenders use new as well as old information to determine if they will issue loans or not. It is therefore in your best interests to make sure you don’t default or miss any payments. You shouldn’t, however, be worried if you do so due to unavoidable circumstances.
6. You have a better chance of getting credit/loans if you have never borrowed
Many people also tend to think that having no credit history is a good thing. This isn’t the case. Lenders love borrowers who have borrowed before because it’s easier to assess the risk profile of such borrowers. If you haven’t borrowed before, it’s hard for a lender to determine factors like your credit worthiness. Considering lenders rely heavily on such information, your loan application can be easily denied if you have never borrowed before.
There’s lots of inaccurate credit report information out there today. After going through the above information, you shouldn’t have a problem identifying common credit report myths which usually stand between you and the credit you deserve. Furthermore, having accurate information about credit reports and scores is the first step to making sure you maintain a healthy credit report/score.