There are several common financial myths that carry on circulating, despite being misleading. It makes good sense to get up to speed on the most common of these so that you can get the most out of your financial planning.
The purpose of a credit reference agency is to put together and store your credit report safely. They do not make lending decisions; they are simply providers of your credit footprint. The lenders are the ones who will ultimately decide whether to proceed, and they do this based on several different criteria — not exclusively your credit rating score.
Sadly, for many of us debts accrued in the past do count. If you have any IVAs (Individual Voluntary Arrangements), non-payment of debts or bankruptcies to your name from the past six years, these will show upon your credit history. Even something as seemingly innocuous as a missed repayment on a credit or store card can affect your rating, as there may be a red flag for unreliability, something that most lenders are very wary of. After six years, though, the slate will generally be wiped clean as far as your new lender is concerned, as a historic debt is not necessarily relevant to your current ability to repay a loan.
If you are borrowing for the first time, the lender will have no basis on which to predict your future reliability. This can in some cases be a basis for them to turn you down. Many lenders will be reassured, though, with some proof of good financial management in some form. Many people worry that if they are self-employed they will struggle to find a lender. In reality, there are several companies out there who will take your individual circumstances into account and will happily offer a self-employed loan.
There is actually no such thing as a credit blacklist, and your gender, ethnic origin and religion are all entirely irrelevant to your credit rating. Many lenders will require an accurate picture of your current financial circumstances — how much you owe in total and your repayment history to date. A responsible lender will want to ensure that you are not taking on a financial burden that you will not be able to manage.
Friends and family that you live with will not affect your credit unless you share a financial connection such as a jointly held mortgage, for example. Living with someone is not the same as having this connection.
This is just not true. In reality, you’re actually likely to get an improved credit score, as it is evidence both that you are able to manage your borrowing and can afford it. A lower score will come as a result of always making the minimum repayment, missing repayments or borrowing up to the very top of your credit limit.
Lenders need to be certain that you are able to afford additional credit, so they will look on an application more favourably if you don’t already owe significant sums across several accounts. They may also give preference to applications from customers who do not rely heavily on their current credit agreements. Ideally, you should aim to keep your borrowing on credit cards to under 25% of your limits.