Thursday, 16 July 2009

Credit report and credit history

posted by debts.org at 03:11

The top ten myths about credit reports and credit reportingTo understand why you are refused credit, you should begin by understanding what impact your credit history has on the type of offer you get, or the reasons you don´t get any offer at all. Your credit history, reflected in your credit report, lists credit card debts, mortgage debts, rent arrears, bad debts, Individual Voluntary Arrangements (IVAs) and bankruptcy. Lenders use this information, with additional details you provide to decide whether to give you credit or now. Several factors can affect your credit rating, and it is worth considering the following:

1. Can previous occupants at my address affect my credit report?

No. It makes no difference to your credit report if the previous occupants were in debt, as long as you don´t share any financial connections such as a joint account. Lender are only interested in your ability to repay them and someone else´s debt, even if they were living at your address will not be considered. Lenders will ask for your previous address so they can check if you ran up any debts while you were there, but your credit report will not be affected by previous tenants/owners of this address.

2. What does a credit reference agency do?

A credit reference agency compiles and holds your credit report securely, but they don´t make decisions about lending. Lenders will use the information in your free credit report, plus information you give on your application to calculate your credit rating.

3. Do past debts count?

Past debts do count, and Independent Voluntary Arrangements (IVAs), county court judgements (CCJs), and bankruptcy can stay on your credit report for a minimum of 6 years. One missed repayment can be recorded for at least three years, so make sure you always pay your monthly credit card debts. All of this could count against you as your credit record will show the missed payments, and a new lender may decide you are too much of a risk.

4. Can I get credit if I have never borrowed before?

Surprisingly, if you have never borrowed in the past, creditors may refuse you credit. As they have no record of payments to refer to, they have no way of predicting how reliable you are with repayments and no credit report to refer to. Most lenders prefer to see a credit report showing regular repayments of loans or credit cards than none at all.

5. Could I be on a credit blacklist?

Contrary to rumour, credit blacklists don´t exist. Your credit rating or your credit report does not take into account your race, ethnic origin, religion or gender, and the only factors lenders are interested in is your repayment history, and the amount you owe already. Annual credit reports show lenders how much you can comfortably borrow to avoid credit card debt, remortgage debt or personal loan debt in the future.

6. Does the number of people living in my house affect my credit rating?

Friends and family who may live in your house have no affect on your credit rating, unless their finances are linked with yours, by way of a joint mortgage or credit card account for example. If there is a joint financial connection however, lenders may look at both credit reports. In this case, their credit rating could affect your ability to make repayments, and ultimately result in you being refused credit.

7. If I repay my credit cards does my credit score improve?

Yes. If you are seen to be paying your credit card debts in full, your credit rating will improve. Your score will be lower if you miss payments or make late payments on credit cards.

8. Does it matter how many credit accounts I have?

It can do. Lenders will only be happy to lend you money if they think you can afford to pay it back. If you already owe large sums to multiple accounts, they may decide you are out of your depth already. Close down any unused accounts, and limit the number of new applications for credit you make.

9. Do I only have one credit score?

Each lender calculates credit scores in their own way, and some formulas differ for loans and cards. If you make four applications in a day for example for credit, you could receive four different credit scores. Missing credit card payments will likely result in a lower score, and paying off a debt could improve it.

10. Do items on my credit report stay on file forever?

Most lenders will check your credit report to see what your current or recent credit history is. They are not interested in debts you may have accumulated twenty years ago, and have since paid off. This has no relevance to your behaviour today, and most information is only kept on your credit report for three to six years.

Labels: applications, credit score