Knowledge is power when it comes to getting the credit deals you want.

Its important you start by understanding the impact your credit history has on the type of offer you get; or whether you get an offer at all!

Your credit history is reflected on your credit report which lists credit cards, loans, mortgages, and other credit accounts, repayment track record and debt information such as bad debts, IVAs and bankruptcies.

Lenders use this, along with details from your application, to decide whether there’s a good chance that you’ll repay what you owe, so it’s crucial to understand what items will and won’t influence them.

Here are the top ten credit myths and the truth behind them!

1. Previous occupants of my address affect my credit rating

These days it makes no difference to your credit rating if the previous occupant of your home was a millionaire or a bankrupt as long as you never shared a financial connection.

Lenders are only interested in your ability to repay them on time and in full. They do like to see stability, though, and if you’ve recently moved they will want to know your previous address, so they can check back.

2. Credit reference agencies help make lending decisions

Credit reference agencies compile and hold your credit report securely, they don’t use the information to make lending decisions. Lenders use the credit report data to help make decisions and perhaps score your application, each using a unique set of criteria to make a decision.

With CreditExpert you can see your Experian Credit Score, based on your credit report, which will give you a good indication of how lenders will see you.

See your credit report free today.

3. Past debts don’t count

Unfortunately, they do. Court judgments for non-payment of debts, IVAs and bankruptcies stay on your credit report for at least six years. Even a missed repayment is recorded for at least 36 months.

Lenders see these and it could count against you because they may see it as an indicator that you will miss payments with them too.

4. If you’ve never borrowed, you’ll get the best deals

You’d think that someone with no history of debt would be attractive to lenders but the reverse is often true. Lenders want you to have a history of making repayments on time and in full. If you have never borrowed, they have no way of knowing how you’ll make payments in the future and may even refuse your application. They’d often rather see a credit report showing a few well managed loans or credit cards cards and regular, reliable repayments.

5. I could be on a credit blacklist

No, you couldn’t, as they don’t exist. Your credit rating doesn’t take account of the area where you live, your race, ethnic origin, religion or gender.

Factors that lenders do consider include your repayment history and how much you already owe. Essentially, they want to be sure that you aren’t taking on more credit that you can comfortably manage.

6. Friends and family living at my home affect my credit rating

Unless you share a joint financial connection with any of them (like a mortgage), friends and family will have no impact on your credit rating.

If you do have a joint account or have made joint credit applications, their name will be listed in your credit report under Financial associations. When you apply for new credit, lenders may see your financial associate’s credit report as well, as their circumstances could affect your ability to make repayments.

7. Repaying your credit cards in full depresses your credit score

This urban myth is also nonsense. Making repayments in full every month is likely to result in a better credit score, because it shows you can afford your borrowings. You’re more likely to get a lower score if you make late payments and let interest (and your total debt) rack up.

Claim back your credit card fees

8. It doesn’t matter how many credit accounts you have

Lenders want to be sure that you can afford the credit they grant, so they prefer it if you don’t already owe large amounts on multiple accounts. They can even take into account the amount you could borrow against your credit limits, so it’s sometimes best to close down unused accounts and limit the number of new applications you make.

Finally, don’t fire off random credit applications, as these will be registered on your credit report. Ask for quotations before you apply and these will only be seen by you on your credit report. If it looks as if you’re trying to borrow a lot in a short period of time, lenders may think you’re desperate for money or even suspect fraud at work.

9. You only have one credit score

Each lender uses its own method to calculate credit scores and some even use a different formula for different products, such as loans and cards. So you could get three different credit scores if you made three applications in a single day. Your credit history also changes over time, as your circumstances change. For example, missing a few repayments could lower how you are scored, while paying off a debt could give it a boost.

10. Items in your credit history stay on file forever

Your credit report is designed to give lenders a good picture of your recent and current position; they’re not interested in seeing that a 40-year-old missed a few credit card repayments when he was 21, because it has no relevance to his likely behaviour today.

Most information about your credit history is therefore held for between three and six years.

Build a better understanding of your credit history – see your Experian credit report with a free trial of CreditExpert, the UK’s leading online credit monitoring and identity fraud protection service.

Source: © Credit Expert/Experian 2008

Claim back your bank penalty charges

Claim back your mortgage exit fees

Claim back your Payment Protection Insurance