We live in a world where our credit-worthiness now impacts not just whether we can get a mortgage, a loan or a credit card, but also whether we can get a mobile phone contract, a bank account, car insurance and more. Yes, your credit rating is important! However, I have found that there are a number of myths surrounding it…what it is, how it’s calculated, how it’s used and what, if anything, you can do about it. So I decided to debunk the five most common myths, here they are:

Myth 1: Everyone has a universal credit rating.

The truth is there is no such thing as a universal credit rating, i.e. that magical number that somehow gets calculated and held somewhere to represent how credit-worthy you are. Yes, credit reference agencies talk about your credit score, but this is just an advertising tool they use and is merely an indicator of your creditworthiness based on the credit information they hold about you.

Here in the UK, there are three credit reference agencies i.e. Experian, Equifax and Callcredit. Their business is to compile data about you to help prospective lenders assess whether or not they should grant you credit in the form of e.g. a mortgage, credit card, loan, etc. These agencies each produce their own credit report on you which you have the right to access in exchange for a small fee. There may be differences on these reports between the three providers, this is because they may hold different aspects of data about you. It is a good idea to check the accuracy of your credit reports, I would suggest doing this about once a year.

Myth 3: There is a credit blacklist.

There is no such thing as a credit blacklist. Each lender has a different set of criteria which they use to assess whether or not you are credit worthy. Some lenders are stricter than others. The good news is that there are some very easy things you can do to immediately improve your chances for credit success e.g. making sure you are on the electoral roll, removing old financial associations from your report, closing old credit cards, building a good credit history, etc.

Myth 2: Credit reference agencies decide the outcome of your credit application.

Credit reference agencies have absolutely no say on whether or not your application for credit is successful. The only thing they do is supply your credit report to the lender you have applied at. It may help you to know that your credit report is not the only thing that lenders will look at when assessing your application, they will also look at other information they themselves hold about you as well as the information within your actual application.

Myth 4: Checking your credit report will damage your credit rating.  

Not at all! You can check your credit report as often as you like, this will have no bearing at all on your credit rating. In fact, you should be checking your credit report from each of the three credit reference agencies at least once a year to see whether or not the information they contain is accurate and to ensure that you have not been the victim of ID theft e.g. someone using your personal details to open a bank account.

Myth 5: Missed payments stay on your credit report for good.

Any missed or late payments, plus other account data, will actually only stay on your credit report for six years after the account has been settled or written off. It does not stay there for good. And an older late payment will have less of an impact on your credit worthiness than a recent slip up. In fact, one missed payment every few years will unlikely affect an application for credit too seriously.