Keeping a credit history file squeaky clean is good practice for those who might need to borrow money. Whether you need a mortgage, personal loan or just a new mobile phone contract, it’s important to get to grips with your report- it could be the key to important life events, like buying a home.
Here are seven myths about your credit file and what you need to know to make sure your report is glowing.
MYTH: The “credit blacklist”
There’s no such thing as a blacklist. Your credit status depends on how you have managed your money. Different lenders have different criteria so while a missed payment a few years ago might be frowned upon by one bank, it may not bother another.
MYTH: Applying for credit doesn’t affect my credit worthiness
Every time you make an application for a loan or credit, it shows on your record. While it won’t spell out if you were rejected, multiple applications for credit cards, for example, will suggest your applications are unsuccessful and it looks bad. Even just two applications in a short space of time could dent your credit score, making it even harder to qualify for a loan.
MYTH: Having lots of credit cards shows I’m credit worthy
Close any credit card or store card accounts you no longer use because a new lender will wonder why you want another line of credit if you already have plenty open to you at the moment.
Make sure all old accounts are debt-free. Owing a few pence on an old catalogue account or not clearing a mobile phone bill could cost you dear.
MYTH: Paying late won’t affect my credit file – surely as long as I pay?
If you don’t manage your accounts properly and miss payment dates for utilities or any other kind of debt repayment, it will be visible to other creditors and could impact future credit applications.
Late – as well as missed – payments indicate that an individual could be financially stretched or lacks responsibility in repaying debts which means they are unlikely to view you as a decent candidate for further borrowing.
MYTH: My partner’s debt problems won’t affect my borrowing ability
Joint finance with a partner will merge your credit status whether it’s a mortgage or finance on a new car. If you split up with or divorce a partner, make sure you write to tell credit agencies to avoid their potentially bad debts affecting you in the future.
MYTH: Old debts don’t matter
Credit agreements stay on file for around six years. So a blemish – such as a missed payment – made years ago can affect applications today.
However, if there’s a genuine mistake behind any hiccups, you can ask to add a brief explanation to explain the circumstances behind the error. This way, lenders have better information about the borrower when considering an application for credit.
MYTH: Paying for everything with cash can ensure a good credit rating
If there is no history on your credit score because you have never had a credit card or loan, then it is hard for a lender to decide if you’re a good candidate for a loan. You are better off taking out a credit card to spend on and pay off in full every month to demonstrate you can handle borrowing responsibly.
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