Your credit history plays a huge part in managing your finances. Here’s a guide to ensuring you stay in control of your credit history.
As a consumer, you most likely have a credit history. This is a record of your previous borrowing over the past few years and is made up of several aspects including:
- The number and types of credit accounts you have
- How long each one has been open
- Amounts of money owed
- How much available credit has been used
- If bills are paid on time
- The number of recent credit enquiries
Your credit history demonstrates to future lenders your ability to make repayments, which can be a deciding factor in whether they offer you finance. For this reason, regularly checking that your credit report is in the best possible shape and free from any errors could improve your approval chances.
What is the purpose of a credit report?
A credit report is a record of your credit history, which provides a detailed insight into a consumer’s previous borrowing. A credit report is compiled by each of the UK’s three credit reference agencies (CRAs):
Each CRA gets its information from a variety of sources. Personal details such as your address are often provided by the Royal Mail or taken from the electoral roll, showing whether you currently live at the address supplied. Data is also sourced from Companies House, banks, building societies and other financial institutions, as well as Registry Trust Limited and many more.
When you apply to borrow money, the lender will ask at least one CRA to see your credit report. Each CRA uses different scales to generate a credit score based on the report, which can help the lender decide whether to approve or reject your finance application. This is the main purpose of a credit report, so it’s important to check it and make sure everything is correct and looking good to boost your application’s chances of approval.
What does my credit report contain?
Your credit report holds information about your financial history. The most important elements are your credit accounts. These include bank and credit card accounts, along with outstanding loan arrangements and utility company debts, showing whether repayments have been made on time and in full. Any missed or late payments and defaults on these credits will stay on your credit report for at least six years.
Personal information such as your salary, religion and criminal record are not contained in your credit report. Information that is held includes:
- Anyone financially linked to you (via joint credit, for example).
- Public record information such as County Court Judgements, bankruptcies, house repossessions and individual voluntary arrangements (IVAs). These will remain on your credit report for at least six years.
- Your current account provider and details of any overdrafts.
- If you’re on the electoral register.
- Current and previous addresses.
- If you’ve committed fraud or someone has stolen your identity.
Why is my credit score important?
A credit score is a strong indicator of how good your chances are of being approved for credit in the future. When you apply for finance, lenders are able to view your credit history and use this to determine whether you’re a reliable borrower. Someone with a positive credit score will likely be deemed a safer option than someone without.
Not only are you more likely to be accepted for credit in the future, but with a positive credit score you should receive more favourable terms and rates. Having an up-to-date idea of your credit situation by regularly checking your report is therefore advisable, so you know if any work needs doing to improve it before applying for finance. This should put you in the best position to be accepted and receive favourable terms.
How often should I look at my credit report?
If you haven’t looked at your credit report in a while (or ever), it’s a good idea to check it as soon as possible. This will give you a good overview of your current situation, highlighting any errors and areas for improvement to increase your chances for future finance applications. If you’re planning to apply for any type of credit - a mortgage or secured loan, or even a new mobile phone contract - you should take a look beforehand.
You can check your credit report as often as you like and it won’t influence your credit score, leaving just a soft search which is only visible by you. Regularly checking will help you spot any errors early on and get them amended. If your credit score is bad, you can put a plan of action in place to improve it before making an application. Otherwise you may be refused credit, which will show up on your credit report and further deteriorate your credit score.
How can I find out my credit score?
Every CRA must provide you with one copy of your credit report for free. This can be accessed online, or you can request a written copy by contacting each of them:
TransUnion offers free access to your credit report for life, but if you’ve not checked for a while or ever, it can be worth applying for a copy from all three. There is a lot of overlap between the CRAs but they do hold some different information. Certain lenders will only check with one CRA too, so having a full understanding of your score with each is best practice.
A good credit score doesn’t always mean you will be accepted for finance, but it should improve your chances and the rates and terms offered.
Learn more healthy financial habits that can improve your credit score with Norton Finance Know How.