Have you ever wondered what a credit report is? We are sure you have heard of terms like “credit score” and “credit report”, but can you confidently say you understand what they are and how they work? Most people haven’t got a clue about their credit report and its impact on their lives.
What is a credit report? It’s a report used by banks or lenders containing your credit history and can be used to judge how much of a risk it would be to give you credit based on your credit score. Think of it as your financial CV.
Feeling confused about your credit report? Keep reading Debt Movement’s guide to learn more about this important aspect of lending.
What Information Is in a Credit Report?
The information that makes up your credit report comes from credit card companies, banks and building societies and lists all the money you have borrowed in the past and the credit you currently have available. Along with all this information, your credit report will also include the following:
- Personal details (name, DOB., and address)
- Information regarding your electoral roll
- Existing credit you still owe
- Any late payments
- Any missed payments
- Service agreements (mobile phone contract)
- If your home has been repossessed at any point
- If you have filed for bankruptcy or an IVA
- Any county court judgments made against you.
All this information will typically be held for up to six years. Credit providers are generally only interested in your more recent credit history meaning any issues will eventually disappear from your record.
Who Creates Your Credit Report?
Companies called credit reference agencies, or CRAs, gather all the information regarding how well you manage your credit and whether you make your repayments on time. In the UK, there are three main credit reference agencies:
Each CRA will maintain its own file on you. This file is called a credit report or credit file and varies depending on the CRA.
Who Wants to See Your Credit Report — And Why?
Any credit provider you are hoping to take out credit with will check your credit report. This can include your credit card company, bank, mobile phone providers and much more. Your employer and landlord can also legally view your credit report, although they might not be able to see all the information credit providers can access.
Lenders will use this information to determine your credit score and how much of a risk you are when it comes to paying the money back.
When and How to Check Your Credit Report
You are allowed to ask for a copy of your credit report so you can see the information credit providers are seeing; this is mandatory and CRAs must provide it. Alternatively, you can sign up to credit monitoring services that will allow you to see an up-to-date version of your credit report whenever you want.
It can be a good idea to request a copy of your credit report from all three of the major credit reference agencies as it is likely each one could contain different information. It is also recommended that you check your credit report frequently to ensure no errors could lead to you having a credit request rejected.
What Are Credit Scores?
Credit scores are key to determining your ability to borrow. Lenders calculate these scores to determine whether or not you are likely to pay back the money you borrow from them.
Your credit score is calculated by lenders from the information provided by CRAs in your credit report. It is used to decide whether you will be allowed to borrow money and even what interest rates you will receive when taking out a mortgage, loan or applying for a credit card.
If you are rejected by one lender, it is worth remembering this doesn’t mean all lenders will reject you. Each lender calculates your credit score slightly differently, meaning you may still be able to borrow from another lender.Improving Your Credit Score
Your credit score normally improves with time as you meet your payments. However, if your credit score is low, there are a few things you can do to improve it.
- Check your file doesn’t include any mistakes — These can be fairly common and minor changes can impact your score.
- Register on the electoral roll — It is much harder to get credit when you aren’t registered.
- Are you linked to another person? — Having a friend or family member’s credit account linked to yours could negatively affect your credit score.
- Pay your bills on time — A simple but effective way to improve your credit score.
- Check for county court judgments — Having a county court judgement on your record will have a hugely negative impact.
- Stop moving home — Creditors prefer to see that someone doesn’t move around as they are believed to be more stable and reliable.
- Make sure you don’t have a lot of existing debt — Always aim to pay off debt before trying to borrow more.
Lending and credit ratings can sometimes be confusing, but with our debt management solutions, you can take control of your finances and pave the way to the future you deserve.