Time to debunk the silly myths about personal credit ratings
A BAD credit rating is the financial equivalent of a six-year hangover. We should fear them. They can stop you getting a mortgage, new car and leave your credit card trapped on a crippling interest rate.
But a lot of what is said about them is rubbish. For example, 71 per cent of people still believe that a previous tenant in your home can affect your credit rating. We asked James Jones, Experian’s head of consumer education, for the truth. Here’s what he said.
1. MYTH: YOU NEED TO FEAR PREVIOUS TENANTS
No, a previous resident in your property will not affect your credit rating. “Credit ratings are based on people not properties.”
2. TRUE: APPLYING FOR CREDIT IS BAD FOR YOUR RATING
Applying for credit in any form, however, does affect your rating. “It indicates a hunger for more money,” says Jones. “Doing it frequently looks desperate.”
3. MYTH: CHECKING YOUR RATING IS BAD FOR YOUR RATING
Checking your rating online will not do anything. “You can check every five minutes if you want. It’s not going to make a difference.”
4. TRUE: YOU NEED TO BE ON THE ELECTORAL ROLL
The electoral roll is the root of your credit rating: “It proves your name and address and ties everything together,” says Jones. You need to make sure you re-list yourself on the register if you slip off while working abroad.
5. MYTH: YOU ARE LINKED TO YOUR PARTNER’S FINANCIAL HISTORY
You are only linked to your partner if you have a financial relationship, sharing a joint mortgage, loan or credit card. “You’re not linked just by virtue of being married. If you share a mortgage, however, it’s a good idea to check each other’s ratings to pre-empt any problems.”
5. TRUE: MOVING HOUSE IS BAD FOR YOUR RATING
Statistically, people who regularly move around are more likely to default on their debts, says Jones. “If you know you’re going to move around for a few years after graduating, for instance, it’s probably best to use your parents’ address until you live somewhere more permanent.”
6. MYTH: CLOSING CREDIT CARDS IS GOOD FOR YOUR RATING
Contrary to what might seem logical, keeping a credit card you’ve missed payments on open will improve your rating. “Your credit card payment records look like a conveyor belt to the rating agencies. You can push bad information off its radar by consistently making payments. Closing the card leaves the missed payment history locked in time.”
8. TRUE: PAYING ONLY THE MINIMUM PAYMENTS ON YOUR CREDIT CARDS IS BAD FOR YOUR RATING
Only paying the minimum payment on all your credit cards hurts your credit rating. “Doing this every so often or on just one card is not a problem, but if you do it on every card all the time, you look like you’re struggling to manage your debts to the rating agencies.”
9. MYTH: MOBILE PHONE BILLS ARE NOT FACTORED INTO YOUR RATING
This used to be true, but now the vast majority share your information with the credit rating agencies.
10. TRUE: TAKING MONEY OUT ON YOUR CREDIT CARD IS BAD FOR YOUR RATING
Once in a blue moon this sort of behaviour is not a problem, but do it regularly and you might have problems. “Yet again,” Jones explains, “it demonstrates a hunger for credit.