Credit ratings: facts and fiction

We’re proud to welcome James Jones back to MoneyAware after his excellent credit report article last year. He’s Head of Consumer Affairs at Experian and works on a range of initiatives to help promote public understanding of credit report-related issues.

credit report sample from Experian

Sample credit report from Experian

I know that many people struggle to understand credit reports and credit ratings, but I was still shocked to see the results of a recent Experian survey. 

Carried out by our CreditExpert service to inform future awareness work, the survey aimed to identify the common myths and misconceptions that exist, particularly around people’s awareness of the factors that do and don’t affect credit ratings.

The results showed that we clearly have a lot of work to do!

Around a quarter of the people polled said they didn’t think missing a mortgage or credit card payment would have any impact on their credit rating. The reality is quite the opposite of course. Missed payments of any kind are very likely to damage credit scores, particularly if they relate to a priority debt such as a mortgage.

Half of respondents were unaware that registering to vote can help you to get credit. This is because lenders use this information to confirm your identity and address history. Not being on the electoral roll is likely to throw a proverbial spanner in the (credit application) works.

There’s more. A staggering 80 percent of people said they thought that a single credit refusal would damage their credit rating. This was actually less surprising because it has always been a common misconception.

The truth about credit applications

The truth is that the outcome of any credit application you make isn’t recorded on your credit report at all – just the fact you applied. What you have to be careful of though, is making multiple applications in a short space of time, because this can suggest that you’re having problems.

For 5 percent of people, the prospect of credit refusal was so daunting that they avoided applying for credit altogether. But of those that did bite the bullet and were subsequently refused, almost three quarters made no attempt to find out why.

While lenders don’t always volunteer the reason for saying no, they should tell you if you ask. They must also put you in touch with any credit reference agencies they consulted, particularly if your credit report was part of the issue.

Interestingly, 10 percent of the people surveyed said they put off checking their credit report fearing the worst. While it’s probably human nature to sidestep bad news, it’s not going to help you in the long run.

So take the opportunity to familiarise yourself with your credit report and the factors that affect your credit rating, particularly if you’re planning to apply for credit at some point. And if you are knocked back, do what you can to find out why – it may help you improve your chances of success the next time.

You can order your credit report and get lots of help and advice from the Experian website.

Posted by in Living with debt