Here at the Bankruptcy Service, we are amazed at how many misconceptions about finance,credit and bankruptcy are ingrained in the psyche of so many customers. We thought it time to debunk a few of them.
At some point you have probably heard about these infamous “blacklists” that people are listed on if they deferred on payments or have a poor financial history. There is no such thing as this list, and any organisation will simply assess your individual credit rating when deciding whether to enter into a contract. Credit reference agencies only display factual information about people, most of which is provided by lenders. In addition, credit ratings do not take into account race, ethnic origin, religion or gender.
Three quarters of all people surveyed by Which? in 2013 believed that having a bad credit rating automatically meant being “blacklisted” by lenders. Those that consider bankruptcy pften also think this gains them entry to a mythical blacklist.
Previous occupants of your address could have a negative effect on your credit rating
They don’t. The only reason a previous occupant would appear on your credit report would be if you had a financial link with them – otherwise, it is not something to consider. The only relevance of an address is your time spent there – the longer the better, as lenders like stability, one example of which is a long residence at a single address.
Paid-off debts don’t count towards a credit report
Many actually do. A bankruptcy, or a similar IVA (Individual Voluntary Arrangement) stays on a report for six years. A bankruptcy is "discharged" after a year, but it will remain on reports for a further five years. This is not a reason to shun the option of bankruptcy though, as even a missed repayment can stay on a report for this long, so those who are in the position of considering bankruptcy will tend to have a mixed credit history already. Unfortunately, a past debt is hard to shake off.
The less you have borrowed, the better credit you should have
It may seem strange, but lenders prefer people who have borrowed in the past. This is because this allows them to see reliable spenders, whereas those who haven’t borrowed have no evidence of how reliable they would be, should they apply for some form of credit. After all, the referencing agencies don't have access to any savings or investment information, so only have the credit report to go off. Regular credit with timely repayments is a near-guarantee of a good credit report (providing you are on the electoral roll, don’t move about much and have no criminal record!).
People who live with you can affect your credit rating
Living with someone does not automatically create a financial connection and thus does not affect your credit report. Only if you have a tangible financial connection would it affect the report. If you have joint financial ties, then it is feasible that a lender will look at their credit report too when assessing an application, as their circumstances could influence your ability to make repayments. If a person you live with is somehow affecting your credit score when they shouldn’t be, you can have a “Notice of Disassociation” placed on your credit report, which removes ties from the other person.
Everyone has one set credit score
Not true. As mentioned elsewhere, each lender has its own criteria when deciding whether to accept an application, and even a single lender will have different criteria for different products, so your “score” could vary from lender to lender and from product to product.
Experian, Equifax and CallCredit are the three main credit agencies, and whilst the majority of the information on each company's report will be the same,whether it's a bankruptcy, missed payment or a person has never taken out credit, there may be some slight differences with some offering extra information drawn from other sources.
Items stay on your credit file forever
As far as lenders are concerned, the purpose of a credit report is to ascertain whether a person seems reliable enough to borrow money right at that moment and in the coming years. It is of little interest to them what that person was like 20 years ago as naturally people change. As documented elsewhere, financial information (such as a bankruptcy or even a missed payment) can stay on reports for six years, but it certainly does not sit there forever.
You can repair your credit rating
Strictly speaking this is true, but there is no quick-fix.
There are numerous ways to try and “fix” your credit rating. The most logical starting point is to obtain a free credit report – Experian, Callcredit and Equifax all do free trials where you can access your report. Check it for mistakes and inform the credit agencies if you find anything you think shouldn’t be there.
Additionally there are other steps to take: if you’re not on the electoral roll, then get on it. Check addresses on older accounts if you have moved house in recent years, as you may not be getting bills and thus be paying them late. Cancel unused credit cards, do not make rapid applications as this will project an image of desperation to potential lenders, pay your bills on time, ensure you have a landline phone and try to avoid having financial ties with anyone with a mixed credit history. Finally, always stay within credit limits and always be truthful on applications, as otherwise you are putting your rating at risk and it could even be considered a fraudulent act.
All this takes time. You can slowly repair your rating, but missed payments or CCJS will stay on your credit report whatever you do for six years, so sometimes you just have to wait. Companies that claim to be able to transform your credit rating in 30 days are a waste of money.
It is possible to have a late payment taken off your history by phoning the lender to have it removed. They might agree for a distant missed payment as they wish to keep you as a customer using their card/product – otherwise you just have to wait. If you have debts, meet them head on and seek advice.
A rejected financial application will damage my credit rating
A common misconception is that a rejection will not only damage your rating but also, as a consequence, ruin any chance of getting credit elsewhere. This isn’t the case. A search made by any company on your credit history leaves a mark, but it is a very small one (as discussed in the next myth). It would take repeated applications for finance to leave a bigger dent, which is why such actions are not recommended (as it also suggests financial desperation to potential lenders). What’s more, if a lender rejects you for a loan to name one example, the rejection will not show on your report, merely that they have done a search. They could however work it out by seeing that you didn’t take out the product you applied for. The type of credit you applied for will also appear on your credit report.
If I check my score it will lower my rating
No. There are two types of credit searches, soft and hard. A hard search is done by someone who will potentially be granting you credit — i.e., a bank, credit card company, car dealership, etc. A soft search is done by someone who needs to know your score, but will not be granting you credit — i.e., a utilities company, a mobile phone company, etc. When a hard search will lower your score, a soft search will not. You checking your score is most definitely not a hard search!
As a homeowner, a bankruptcy will automatically mean the loss of my property.
If there is equity in your property (the amount owed on the property is less than the value), then you may be required to sell the property to release the equity as a contribution to your creditors. You do not have to lose your home however. If a friend or family member agrees to purchase the equity you have in your property, or you owe more than the value (you are in negative equity), then you may be able to keep your home. As always, seek advice, as this way you willg et a clear idea of the options available to you, be it bankruptcy or another path. The idea of bankruptcy is scary to many people, but bankruptcy does not mean you will lose everything you own nor be ostracised.