Being able to borrow means showing lenders that you’ve demonstrated good financial behaviour in the past. Lenders will take a look at your credit report to decide whether or not to lend you the money.
Understanding your credit report will go a long way to helping you find out if there’s anything which might be holding you back from getting credit.
What is a credit report?
A credit report is a financial record which holds personal information about you, as well as listing any existing financial accounts that are linked to your name. It’s updated every 30 days to include any updates to your financial records, and to include any new borrowing.
Lenders use your credit report to determine any risk associated with lending money to you, this will help them decide the terms of a loan, including the length of time and interest rates set. The better your credit history, the more favourably the lender will feel about the loan, reflected in the terms they offer.
It’s therefore important to keep an eye on your credit report to ensure that it’s up to date with your personal information and any accounts that have been closed aren’t still listed, as these could have a negative impact on your score.
Whenever you apply for credit, the lender will check your credit report before making a decision for any of the following:
- Before you apply for a credit card.
- When purchasing an item on credit (for example, a car).
- When looking to buy a house as part of the mortgage process.
Lenders may use different information before making a decision on you, depending on their specific lending criteria. This could be one of the main reasons you get different offers from different providers over time.
What is a statutory credit report?
A statutory credit report is the version of a credit report provided to you by any of the three credit rating agencies (CRAs). You’re allowed to request one at any time, for a small fee.
More about credit rating agencies
The three main credit rating agencies are Equifax, Experian and TransUnion (formerly Callcredit). It’s important to make sure each agency holds the most current information on you.
What information does your credit report hold?
Your credit report takes various pieces of information to help form the overall score given to you by each credit rating agency. This is based on a number of things but mainly shaped around the accounts you have open and what you’ve recently borrowed, or tried to borrow.
Lenders will look at your credit rating to determine whether they are going to lend to you, so it’s important to ensure your credit report is as up to date as possible.
There are two types of credit checks that a company can conduct when looking into your financial records. These are called ‘hard’ and ‘soft’ searches:
- A hard search will stay visible on your credit report for a year, and is a much more in-depth look into your finances, which could impact your overall score.
- A soft search is usually more of an overview into your accounts and doesn’t impact your score like the hard search does.
It’s important that if any of the information is incorrect on your credit report, that you contact the credit reference agency to get it corrected. The credit report will usually include information such as:
- Your name, address and date of birth
- Any other names you might be known by (for example your maiden name)
- Previous addresses you have lived at over the past six years
- Any person you have made a joint application with (for example a spouse)
- Any court judgements, bankruptcies and voluntary arrangements.
- Any bank or credit accounts that you have open, and overdrafts associated with the account
- Any hard or soft searches made on your account.
Improving Your Credit Score
There’s a number of things that can contribute to your overall credit rating. As your report is updating frequently, it’s important to be aware of these things to help improve your score in the future.
To ensure that your credit rating remains at a good level, make sure that you keep the below up to date:
- Checking that you are on the electoral roll at your current address. To do this, contact your local authority and complete a registration form.
- If a court judgement appears as unpaid and you have already paid it, if you live in England or Wales, you should contact the court concerned. Once they know the judgment has been settled, they will inform the credit reference agencies. If you live in Scotland, you will need to contact Registry Trust Ltd with a receipt or letter from the person you paid, along with a cheque for £4 to cover their search fee.
Credit Account Information
All the UK’s major lenders share the details of their customers’ credit agreements through one or more of the three credit reference agencies. This information belongs to the lenders who provided it and is updated every month. The credit reference agencies can’t change any of the details supplied without the lenders’ permission.
Every credit account includes a list of status codes for the last six years, which show whether your accounts are settled, up to date, overdrawn, late or in default, meaning you broke the credit agreement and it has been cancelled.
The credit account will also show whether:
- The lender has sold the debt to a third party
- Has agreed to vary payments or a debt management programme,
- Believes you have moved without providing a new address or
- Believes you have died.
If any of this information is incorrect, you should contact the lender in question as soon as possible to ensure that the information is corrected to help improve your score.
Closing old accounts
If an account is not being used and nothing is owed, you can improve your credit rating by closing the account. This is because lenders look at the amount of credit you have available, as well as the amount you’re currently using. Measuring how much of your available credit you’re using is an important part of your overall financial health.
If you don’t recognise an account, you should contact the lender directly. It may be that you have a store card or credit agreement with a store that is managed by a separate company.
Some credit store cards also provide extra information about how you manage your account. This can include your monthly balance, the amount repaid each month and the number and value of any cash advances.
What builds up your report?
Checking on the following things can help you improve your credit report.
Hard and soft credit searches show that a lender has looked at your report to check your identity or credit history. These can show unusual credit activity, such as a number of applications in a short time, which can help identify attempted fraud.
Records of previous searches can only be removed with the permission of the company that made it.
Having too many previous searches on your file could deter lenders from approving your application, so check to make sure you recognise all of them. If you don’t think a search record is correct, you should contact the lender in question.
Sometimes a company will do a search that isn’t for lending purposes. This is called an ‘unrecorded enquiry’ and won’t affect your credit rating as it can only be seen by the company that made the search. It is only recorded for your reference.
Shopping around for the best deal shouldn’t leave lots of searches on your file. If you only ask for a quote, then the lender should only do a ‘quotation search’. These won’t affect your credit rating because lenders know they aren’t full applications for credit.
A financial associate search happens when someone you have a joint account with applies for other credit. The report will show that your information was only used in relation to an associate and won’t affect your credit report. However, if you’re no longer connected to that person, you should contact the credit reference agency to let them know. Remember that their credit record could impact on your future applications.
The Gone Away Information Network (GAIN) shares information about debtors who have moved without giving a new address. This includes the address the customer was last known at and any other address the customer has been recorded at since.
If you think any GAIN information on your report is wrong, contact the lender who provided it and ask them to update their credit reference agencies. Alternatively, get in touch with the credit reference agency and they can contact the lender for you.
CIFAS is the UK’s fraud prevention service. It was developed to detect and prevent fraud and to help stop people’s names, addresses or other details being used by fraudsters to get goods and services such as credit.
A CIFAS warning on your file doesn’t mean that you have been accused of fraud. It could mean that others have tried to use your personal information, however, so lenders will take extra precautions such as contacting you to ensure your application is genuine.
Notices of correction
These are short explanatory notes of up to 200 words that you can attach to any entry on your file to explain the circumstances surrounding the status. They are visible to any lender searching your file.
You can add these to your credit report by visiting the credit reference agency’s website or writing to them, quoting the entry reference number and the text you want to attach. You can’t add a statement that is unjustified, defamatory or libellous.
It’s important that you keep a regular check on your financial records to ensure that your credit rating remains as high as possible. This may help increase the number of companies that are willing to lend to you in the future.