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Credit Score Myths

By: Jennifer Lowe - Updated: 19 Sep 2012 | comments*Discuss
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Personal debt in the UK has hit an all-time high, which means that we depend on the ability to borrow to get through day-to-day life. This is why it is important to understand what a credit rating is, because it can affect your ability to get that all important loan or credit card. Your credit rating is made up of your financial history, which is stored in a report held by credit reference agencies.

The information help includes previous credit agreements, like credit cards, loans, mortgages, your repayment history and whether you have ever missed payments, have outstanding debts, or have declared yourself bankrupt.

Lenders then calculate a credit score by using this information along with your application form. The credit score represents the risk that you pose as a potential borrower. The rule of thumb here is that the higher your score, the lower the risk is of lending to you, it also means that as a borrower with good credit you will have access to the best deals. Here are some of the common myths associated with credit reports:

The Previous Residents Had Bad Credit and it Has Affected Me

It is amazing how many people are under the impression that the previous residents of their property have an affect on their credit rating. The financial circumstance of any previous occupiers, whether good or bad, has absolutely no affect on your personal credit rating. You must remember, that it is people that have a credit history and not houses!

Other People in My Household Can Harm My Credit Rating

It is true that in the past lenders were allowed to take into consideration the credit histories of family members or friends that lived under the same roof. However, this is no longer the case and now the only way you can be affected by somebody else's financial activity is if you have a joint account, mortgage, or other form of credit.

The Credit Reference Agency Turned Me Down for Credit

The mistake that many borrowers make is by thinking that it is these agencies that determine your credit score and make the decision about whether or not to lend to you. The truth is, they don't. Credit agencies simply collect the information and hold it in a secure database. Lenders calculate a credit score by using this information along with your application form.

I Can't Get Credit because I'm Blacklisted

This is probably the most common myth surrounding credit. There is no such thing as a credit blacklist, and you cannot become blacklisted because of your financial circumstances. You maybe a risky candidate for credit, but the likely scenario is that someone will lend to you, but because of your credit history you may be subject to higher interest rates.

Your Credit Rating is Only Calculated Once

Every time you apply for credit, a lender calculates your credit rating based on your financial history and the information you supplied within your application form. This score reflects your current situation. And, each lender has different criteria when it comes to calculating your individual credit score, which means that your rating is changing constantly.

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