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The top five credit myths

Myths grow up around major events and the credit crunch is no exception. It can be difficult to know what's true and what isn't when you're trying to plan your finances, so here's a little help in separating the facts from the fiction.

Myth 1: Interest rates automatically fall when the Bank of England drops the base rate
The Bank of England sets the base rate but it's up to lenders what they charge for the money you borrow. The credit crunch has made it more difficult and expensive for them to borrow, so they will pass some of this on to you. The risk that you won't pay them back is also a key factor. If they can see that you've been a reliable borrower who repays what you owe on time and in full, you'll probably qualify for a lower interest rate than if your credit history shows you've missed repayments or have court judgments against you for bad debts.

Myth 2: Lenders don't want to lend any more
It's their business to lend and they certainly don't want to stop but, they are more cautious now than they are during an economic boom, as there is a greater risk that borrowers will face hard times. Their main concern is that they are lending responsibly and not stoking unsustainable debts, so they take steps to ensure that you can make repayments comfortably, on time and in full. They therefore check your credit report every time you apply for a new loan, card or mortgage. This lists your existing credit accounts and your repayment history - if your track record is good and you're not over-extended, you stand a better chance of being able to borrow.

Myth 3: It's impossible to get a mortgage
There are currently around 3,000 mortgage deals on offer, down from more than 13,000 at the peak of the housing boom in July 2007, so choice is certainly reduced. Loans for 90 per cent or more of the value of a property are also hard to come by - the minimum deposit most lenders ask for is at least 15 per cent. So conditions for would-be buyers are tougher than they have been but mortgages are still out there - in fact, ten per cent more mortgages were approved in October than in August. Again, your credit history is key. Before applying for a mortgage, you should check your credit report to ensure it is up to date and accurately reflects your circumstances. Challenge anything you disagree with, close unused accounts and ensure you make all your repayments on time to improve your chances. If you've had any major problems in recent years, it may be better to wait until your situation has improved and keep on saving - prices are expected to fall further, so it could be the best move you can make.

Myth 4: You can't get a credit card unless you have a perfect credit history
A YouGov poll reports that 18,000 credit card applications are being rejected every day but there are still around 150 different deals on offer. It also seems unlikely that everyone with one of the 67 million credit cards that the British Bankers Association reports we have in our wallets has a perfect credit history, so there's still a card out there for most of us. As with all other forms of credit, it helps to have a good credit report but you'll also cut your risk of being turned down if you pick a card that matches your circumstances - try a price comparison site to get some idea of what might suit.

Myth 5: The credit crunch is why I'm on a blacklist
There's no such thing as a credit blacklist and lenders don't take account of your race, gender or religion. Neither will lenders refuse credit because of where you live or who lived at your address before you. You're more likely to be rejected because you don't meet the criteria set by an individual lender. These could include the amount you earn, the amount of credit you already have and how many applications you've made in the last few months. Even being registered to vote can affect your credit rating.

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