It’s the method used by banks, mortgage lenders, mobile phone companies, credit card providers and any other organisation that gives us credit; but a new study shows that 52.5 million Britons – 86% of people – have no idea whether lenders rate them as good, bad or average, even though a quarter of us have been turned down for credit in the past.
A sixth of us wouldn’t even know how to check our credit reports and just over one in 10 haven’t checked for fear of what it would reveal.
The study also shows that millions of us are confused about what does or doesn’t affect how we’re rated for credit, what we can do to improve it, and how a bad credit rating can impact our financial futures. While each lender may differ slightly in how they calculate people’s credit ratings, there are key factors most will agree on.
Most of us think some factors will definitely harm our ratings when they won’t. Almost 80% of people think being turned down for credit is the biggest negative factor when it comes to a credit rating.
But actually it’s not the ‘being turned down’ bit that counts – this isn’t even registered on your credit report. The issue is that each application leaves a footprint on your credit record and too many footprints in too short a time – for whatever reason, including if you’re turned down and keep applying elsewhere – can harm your credit rating because it can suggest desperation.
And three in 10 people think that having an online gambling account will affect how lenders view us. But lenders don’t see the names of your others lenders when they carry out a credit check, so gaming accounts are not identified.
More worryingly, others underestimate what does have a negative impact. One in four consumers believes that missing mortgage payments or credit card payments will not have an effect on their credit rating, when few things are as harmful.
But many of us are also unaware of some of things that can be done to improve how we’re rated. Close to half of those surveyed were not aware being on the electoral roll is often one of the quickest ways to improve your rating.
Perhaps as a result, more than one in three men who checked their rating on a service like Experian CreditExpert found it was higher than they expected – although women seem to over-estimate their credit-worthiness, with a fifth finding their score to be lower than they were anticipating.