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Five myths and secrets about your credit rating

Rates on loans and credit cards are falling thanks to the record low bank rate and Government  measures to kick-start spending in the economy - but firms have also become more circumspect about who they lend to.

Showing you are a responsible and stable borrower will make it more likely you will get the best interest rates on loans and credit cards, as well as minimising the chances you will be rejected outright for credit.

The 'credit score' information held by credit reference agencies - such as Experian, Equifax and Callcredit - is one of the things lenders will take into account when considering an application, yet still many consumers have misconceptions about things that will or won't affect your credit scores.

Common myths: Using your credit card doesn't automatically mean you get a good rating; it's important to stay below 30 per cent of your available credit.

Aqua, which provides credit card products for those with low credit scores, has identified a number of myths which became apparent following a survey of UK adults.

1. If you don't use credit cards then you'll have a better credit score.

Aqua's survey found that 37 per cent of people 'don't realise the more you use credit available to you, the better your credit rating'.

Showing you can use credit responsibly over a period of time - using credit but paying it back promptly - will demonstrate your trustworthiness as a borrower, but that doesn't translate to spending on credit cards as much and often as possible.

That said, those who have never used any forms of credit - be it mortgages, loans or credit cards - will not have the opportunity to have built up a decent record.

But the key to a better credit rating is 'utilisation' of your card limits, with those people who consistently keep their balances between 0 and 30 per cent of their total available credit likely to see a more favourable impact on their scores.

  More... My boyfriend is bad with money, will my credit score be affected if he uses my address for credit applications? How to improve and protect your credit rating Compare hundreds of credit card deals Get a free 30-day credit check trial

2. Moving house won't impact your credit applications

A lender would not likely be put off if you may have moved recently after several years at the same property and have an otherwise exemplary financial record.

But lenders like to see stability when they mull over applications for credit from potential customers, and staying in the same home for extended periods of time means statistically speaking you are less likely to miss debt repayments.

Several location moves in short periods of time therefore may not paint the most positive picture when applying for a loan or credit card.

3. Being on the electoral roll doesn't affect your credit score.

It's oft-repeated as one of the simplest ways of improving your credit score, but it doesn't seem to be getting through to those responding to the Aqua survey, 45 per cent of whom think not being on the roll has any impact.

Stability is the word again. It's something lenders like to see in their customers and registering for the roll in whichever area you live will boost your chances of being approved for credit or getting better rates.

Driving your score up: Owning a car doesn't make a difference to your score, but keeping up with financing repayments will.

4. Owning a car helps improve your credit score

A quarter of people responding to the survey think the simple act of owning a car makes you a more attractive customer to lenders.

But if you've paid for your car through savings, or had it bought for you, you're not leaving a credit footprint so lenders will not see this information when they access your credit file.

However, if you've used a personal loan to buy a car, meeting the repayments over the course of the loan will positively impact your score.

5. Your credit rating doesn't affect your utilities contract

If you want the best energy tariffs, energy providers will credit check you before offering you their products.

How well you keep up with your payments is also noted, and it's not just gas and electricity providers who share this information.

Earlier this year Yorkshire Water struck a deal with credit reference agency Experian which will see the water and sewerage firm share customers' payment histories and debt details with credit lenders.

Richard Pash, of Aqua, said: 'Despite the benefits of a strong credit score, few people actually know what effects their score or indeed how to improve it.

'The fact is, around half of credit worthy individuals are at risk of being declined credit by mainstream lenders.  However, by taking simple actions like making sure you’re on the electoral roll or removing old partners from your financial history, people can easily improve their credit rating.'


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