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Credit agencies are the ultimate spies. They legally snoop on all of us, swapping the info with others and making us extremely paranoid into the bargain. They give power to unregulated industries, like private parking firms, who use the horror of a bad credit score to intimidate us into paying for things we dont have to. The credit score. Its like the grown-up version of the permanent school record. Completely terrifying, designed to stop us being naughty and entirely mythical. Like how your teachers used the threat of your permanent record to keep you behaviourally in line, the credit score is something of a fantasy to keep you in line financially. Yes, credit reference agencies keep information about your financial conduct, but please dont fall for the myth that theres a score next to your name that automatically bars you from buying a new bathroom on credit. There isnt.
The three major credit reference agencies, Experian, Equifax and Call Credit, keep a record of your financial history. They then sell this data to lenders so the lender can assess the risk you represent to them should they lend you some money. Since there is no single universal scoring metric, its impossible to have a low credit score. And since each lender has different criteria by which they judge creditworthiness, theres no way your score can be low. It can be below the threshold theyre using at a certain time, for a certain product, but that doesnt mean you will never get credit. However, there are some people who will simply always struggle to get credit. If youve been bankrupt or have a history of defaulting on debts, this will be recorded on one or more of the credit files kept about you. This is fed into a calculation which spits out an arbitrary and often misleading risk assessment. So while there is no standard scoring metric, there are certain things that will hinder your chances of gaining credit. Worry about fixing those, rather than your score.
Often the reverse is true. For a lender to judge how risky you are as a borrower, they like to see a history of repaid debts. But if youve never borrowed a penny (say, due to earning a good income, saving and living within your means), your ability to manage debt cant be assessed. Millionaires with zero debt have been known to be declined credit on this basis. So how do you go about proving youre a low financial risk? Well, the reference agencies would advise you to take out a small amount of debt and pay it back on time.
So, the people who lived at your house before you never paid their final gas bill and now you cant get a decent credit card. While this may be true, please learn the difference between correlation and causation. One doesnt equal the other. Credit reference agencies like to know where you live and where youve lived for anti-fraud reasons and if you arent on the electoral role, youll struggle to get credit. But that doesnt mean that credit files dont account for people moving house. Its impossible for an address to have a debt assigned to it without a name of the debtor.
Three-quarters of people surveyed by Which? Magazine in 2013 believe there is a credit blacklist. Not true, no matter how much of a mess you get in. The most severe issue that can appear on a credit file is fraud. After that, its bankruptcy and bankruptcy is typically removed from your credit record six years after discharge, according to Experian. So any lender looking at your credit history in the future wont be able to see that youve been bankrupt. However, if they ask you if youve ever been bankrupt and you fib, thats fraud. Dont do it.
If only. Even the credit reference agencies have advice on what to do if theres a mistake on your credit record. Thats actually quite a nice wheeze if you think about it. We hold this data on you and weve made a mistake, it could prevent you getting a mortgage. Pay us some money so you can check to see if weve made a mistake. Joanne Smith, a beauty therapist from Southampton found this the hard way in 2014 when a mortgage in the name of another J Smith (there are a few) was added to her record, preventing her from getting credit. She told the Telegraph
No one at Nationwide seemed to know why the mistake happened or how to fix it, she said. I was repeatedly promised call backs that never came so I went into my local branch a few weeks ago to see if I could get some answers. I was told my complaint hadnt even been logged on the system, even though it had been over a month since my initial call.
So you finally give in to your paranoia and decide to check your credit score. Oh look, you can get free access for a limited amount of time, provided you set up your payment details and then remember to cancel. If youre organised enough to remember to cancel your account with Experian, Equifax or Call Credit once youve had a look at the information they hold on you, you can expect a phone call. Itll be a sales call disguised as an update. Youll be told that your credit score has changed and that you should probably pay to see whats happened. But dont. Most people check their score before making a large financial decision, such as taking out a mortgage or buying a car on credit. So it stands to reason that most peoples credit score changes shortly thereafter. You check your score, get a mortgage and then that is added to your credit file. Theres absolutely no need to worry that your score has changed. It changes most weeks when new info is added.