Busting Credit Rating Myths

Credit blacklists, popularly believed to dictate your chance of securing loans and credit, are actually a myth claims a new report from a leading credit rating agency.

Lenders do use credit rating information to decide whether an individual is liable to be a safe investment, however.

The company also sought to puncture claims that the previous occupant of your home can affect your credit rating – lenders in fact rely on names and never addresses.

"There are a number of myths about the credit reference processes that have been perpetuated over the years, leaving many consumers baffled," said the director of consumer affairs.

"Many of these myths have no basis in fact. It is important that everyone understands how credit works so they can have confidence that the system really does work for them."

Credit refusals will also never turn up on your credit rating, despite what some agencies claim.

The key messages are that a score is not a part of a consumer’s credit history, that many different scoring models are used, that the factors in the credit report influencing the score are more important than the score itself, and that automated tools such as these help lenders make better, faster, fairer and more efficient decisions.

Some credit rating agencies have simulator programmes that will allow consumers to ask “what if” questions about how changing their personal credit management might impact their score.

It used to be that the reason most people wanted to see their information was because they had been refused credit. These days, more than half of them are applying out of interest and not because they’ve been declined.

You should actively check your credit rating periodically. It can tell you how you are doing and also may highlight any problems such as identity fraud.

If you would like to know more about credit ratings why not ask AnswerBank Business and Finance.