Credit ratings: the facts and the fiction

A lot of people struggle to understand credit reports and credit ratings. As users of our money manager software are aware, we aim to make personal finances simple, but it was still a surprise to see the results of a recent survey aimed to identify the common myths and misconceptions that exist, particularly around awareness of the factors that do and don't affect credit ratings.

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 tends to be quite the opposite. 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 actually 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.

And if that wasn't enough, a staggering 80% 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 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% 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% 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 of course. 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 find you are knocked back, do what you can to find out why. It may help you improve your chances of success the next time.

The survey was commissioned by Experian CreditExpert and research was conducted by Opinion Matters among a representative sample of 1,444 UK adults in November 2012. It's free to see your Experian credit report and Experian credit score with a 30-day trial of CreditExpert. New members only. Monthly fee applies after free trial. Free trial period starts on registration – further ID verification may be required to access full service, which may take up to five days.

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