Consumer: The borrower’s guide to exploding credit myths

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A new year often brings new bills – and new credit applications.

Experts at credit reference agency Experian advise that would-be borrowers should start by understanding the impact their credit history could have on the type of offer they get – or whether they get an offer at all.

And first things first, they say: DON’T get taken in by these top 10 credit myths:

Myth 1: Previous occupants of your address affect your credit rating: It actually makes no difference if the previous occupant was a millionaire or bankrupt. You will not find their name on your credit report unless you share a financial connection with them, such as a joint account.

Myth 2: Credit reference agencies make lending decisions: Credit reference agencies compile and hold your credit report securely. They don’t make decisions; that’s up to lenders.

Myth 3: Past debts don’t count: Unfortunately they do. Court judgments for non-payment of debts, Individual Voluntary Arrangements (IVAs) and bankruptcies stay on your credit report for at least six years. Even a missed repayment on a credit card is recorded and could count against you as lenders may think that you will miss payments with them too.

Myth 4: If you’ve never borrowed, you’ll get the best deals: If you’ve never borrowed, lenders have no way of predicting how reliable you’ll be in the future and may even reject you.

Myth 5: You could be on a credit blacklist: Blacklists don’t exist. Lenders DO consider your repayment history and how much you already owe.

Myth 6: Friends and family living in your home affect your credit rating: Unless you share a financial connection with any of them — eg, a joint mortgage — friends and family have no direct impact on your rating.

Myth 7: Repaying your credit cards in full lowers your credit score: You’re likely to get a BETTER credit score, because it shows you can afford your borrowing. You’re more likely to get a lower score if you miss payments, make just minimum repayments or borrow right up to your credit limits.

Myth 8: It doesn’t matter how many credit accounts you have: Lenders want to be sure that you can afford more credit, so they prefer it if you don’t already owe large amounts on multiple accounts.

Myth 9: You only have one credit score: You could get three different credit scores if you made three applications in a single day, even to the same lender.

Myth 10: Items in your credit history stay on file forever: Your credit report is designed to give lenders a decent picture of your RECENT and CURRENT financial position only.

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