Your Credit Report Part 1 - Six Myths
Your credit report and score is one of the most important aspects of your personal finance and it has never been so important to keep an eye on it. Why is it so important we hear you ask?
- A good credit score would in most cases help you get a loan or credit card at a lower cost/interest rate. A low credit score usually subjects you to a higher interest rate on loans or for extremely low scores, no loans at all through standard lenders and thus push you down the payday loan route
- Getting on the property ladder is a common dream shared by most British. However what usually stands in the way is the deposit required to buy a property which is currently £33,000 on average. What is unknown to most is that a low credit score could also scupper that dream and affect your ability to get a mortgage with a bank or increase the cost of getting one
- It could potentially affect your ability to get certain jobs or work in some industries and the list goes on and on.
Now that we have your attention - We plan to write a three part series to help you navigate through such an important but sometimes murky subject. The three areas we plan to cover are:
- Your Credit Report Part 1 - Six Myths
- Your Credit Report Part 2 - Improve your score
- Your Credit Report Part 3 - Stay high
Your Credit Score Part 1 - Six Myths
Myth #1 - Reviewing your credit report frequently will hurt your credit score
This is one of the biggest myths of them all. This actually stops most people from checking their report.
MoneyNotes says - If you gain access to your report through one of the reputable agencies out there then it does not affect your credit score. Instead it gives you insight into
- How you are managing your credit and also suggestions on things you can do to improve your score.
- Unusual activities related to your accounts such as identity theft and fraudulent credit applications made in your name
- MoneyNotes recommends you check your score at lease once a quarter. This could be one of your 30-minute financial workouts
- A list of some of the more reputable agencies is set out at the end of this blog
However, if the access to your report is as a result of application for credit (loans, credit card etc) that has been submitted on your behalf then this may affect your score. Basically it's signalling the addition of debt to your account.
Myth #2 - There is a credit blacklist out there - Don't get on it!
A lot of people believe that there is a credit blacklist out there and once you are on it then you won't be able to get a loan from traditional banks and you may have to look to loan sharks for credit
MoneyNotes says - First of all there is no such thing as a credit blacklist. The lenders such as banks and credit card companies do not have a shared list of customers that they won't lend money to. Their decision to lend are based on your credit score, report and other factors completely unrelated to a fictitious credit blacklist.
Myth #3 - There are companies out there that can fix your credit score problems and make them go away instantly
There is always the temptation to look for companies that will help repair your credit score immediately.
MoneyNotes says - Be careful about how much you pay these firms, such companies will focus on debt repayment which does not always gurantee a quick fix to your score. Most things they suggest are things you can do yourself or chat to us about it. Improving your score is also the next topic in this blog series
Myth #4 - I'm flushed with cash, so why do I have a low credit score!
You are a high earner and have a lot of savings, no credit cards or loans as you have been told debt is bad. However, the credit reference agencies still assign you a low credit score.
MoneyNotes says - Remember that your credit score is based on your use of credit and debt management in general and nothing to do with your pay packet or dynastic wealth! If you have no debt or credit then you have no footprint for these agencies to monitor your behaviour. Therefore, it will be difficult for them to assign a high score to you. Now, now, we are not suggesting you run out there and start a debt binge!
Myth #5 - You have so many credit cards - get rid of the ones you are not using!
If you have a credit card that you don’t use, you’re unlikely to improve your score by closing the account.
MoneyNotes says - Credit reference agencies amongst all other things focus on how much credit you are using compared to the total value of credit available to you. Some agencies term this "Credit Utilisation". Therefore when you close a credit card account you are reducing the total value of credit available to you and consequently reducing your utilisation. With most things it is important to strike a balance - If the credit card will lead to temptation of racking up debt then probably better to get rid of it.
Myth #6 - Credit reference agencies know everything single thing about your finances
Believe it or not there are quite a lot of information relating to your finances that these agencies do not have sight of.
MoneyNote says - Oh great! "They can't see that council tax arrears so I'm not paying it". Please note that the point of mentioning this myth isn't to drive bad financial behaviour in some areas of your finances but to put your mind at rest. If you get a copy of your credit report you will quickly find out that the report does not capture quite a lot of your financial history including
- Your salary
- Defaults on your report that are older than six years
- Your assets for example your savings and investments
- Previous rejection of your application for credit
- As far as we know, UK student loans
- Parking or driving fines
These myths should have cleared a lot of your doubts about your credit score and report. Now it's time to take action, get hold of your report right now. Whether good, bad or ugly it is better to know what you are up against before your start your journey to improve your score or stay high.
As promised earlier please see below for a list of reputable credit reference agencies and how you can get hold of your report for FREE.
Check your credit report for FREE
1. Experian - You can sign up for a free 30-day trial of Experian's CreditExpert service (Don't forget to cancel if you don't need it afterwards). You can also access this through Money Saving Expert Credit Club.
2. Equifax - Equifax also offers a free 30-day trial of its full credit monitoring service. It costs £7.95 a month after the free trial.
3. Callcredit - Callcredit also offers free access to its credit reports.