Credit report health check

       

By Gemma Harrison

The humble credit report is a much-misunderstood phenomenon. For such an important record, little is really understood about what it is, who contributes the data and who uses the data. It goes without saying that it is important that your credit report is in a healthy state because it can determine your ability to purchase a home, to obtain a credit card, or be successful in a job application. Since we can agree that all the above is pretty important life stuff, it is crucial to check that your credit report is accurate. You will have heard the terms "good credit" and "bad credit" loans but what do they mean? Well this guide hopes to help.


credit report health check

What is a credit report?

As the name suggests it's a record of the way a person has conducted their personal debt obligations. Also recorded are the number of searches and any public information such as county court judgements etc. Credit providers provide the data in return for being able to search the database.

What is a credit score?

A credit report and the accompanying score are used to measure the health of a person's finances by analysing the way historical debt obligations have been managed. A credit score is usually a three-digit numerical grade often ranging between 300-850, but each credit reporting firm has their own way of calculating the score. Using these scores, credit providers may decide whether or not a person is reliable and credit-worthy to issue credit.

Why is a credit report important?

There are lots of people who are oblivious on where they stand in terms of their financial health. In some instances, people only discover that they have a poor credit report when they apply for a loan or credit card and are met with disappointment when they are turned down.



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It is important to obtain your credit report and scores and understand your financial status. You can obtain your credit report for a small fee from most credit bureaus. Whilst you may not get a clear understanding from reading just one credit report and score, you can always apply for two or three reports from different credit bureaus at different times of the year. The benefit of doing this is so you get an unbiased view of where you stand financially, and you can use the report to help plan your financial future.

Difference between a credit report and credit score

A credit report gives you the detail of the individual loans and accounts and a more detailed insight at your financial status if you know how to read and analyse it. However, the score is a complex mathematical equation which scores the variables in the report and builds that up to a score. Just looking at the score, it is not really clear as to what contributed to that number. If you notice that your score has unexpectedly dropped, the only way to determine the cause would be to study the detail of your credit report and search for anything out of the ordinary, for example, missed payments or fraud.

A credit report, if you know how to read one, can reveal a great deal about the way you conduct your finances. Lenders and credit providers will attempt to review and examine all the data for any indication of patterns or habits. Some lenders will attempt to build their own score or they will rely on the score provided by the credit reference agency.

It is suggested that everyone gets a credit check at least once a year to view the information being collected and ensure that it is kept up-to-date and accurate. If your credit report has come up with any incorrect information or reports on situations that you are not aware of, you can challenge the accuracy of the info and the collecting agency will investigate.

What information is included in a credit report?

In short, a credit report is a detailed report of an individual's credit history. Some of the information in your credit report will come from publicly available sources, banks, building societies and credit card companies you have borrowed from in the past, or currently owe money to. Specifically, your credit report contains details of when you borrowed money and whether you repaid it on time. See what the Information Commissioner's Office has to say on credit reports here.

The information you will find in your credit report includes:

  • Your name, address and date of birth
  • Whether you are on the electoral roll at your current address
  • How much money you currently owe lenders
  • Any late payments on existing or past credit card or loan accounts
  • Any missed payments on existing or past accounts
  • Whether your home has been repossessed or you have moved away whilst owing money
  • Whether your vehicle has been repossessed
  • Whether you have filed and been declared bankrupt

How can I access my credit report?

There are three major credit reference agencies in the UK that you can approach regarding your credit report. When you write to them you should include:

  • Your name, address and date of birth
  • Any other names you have used or been known by in the last six years e.g. your maiden name
  • Any previous addresses you have lived at in the last six years
  • The required nominal payment

These commercial organisations compile information about you and will supply it to a credit provider (or indeed any interested party) when you apply for credit. There are likely to be three slightly different versions of your credit report, the reason being that lenders don't always share the same information with all three credit reference agencies.

Regular checking of your credit report is also a way to protect yourself from any identity fraud (all the more reason to do it at least once a year). The worst-case scenario would be finding out someone has opened accounts and racked up their debt in your name.

The addresses of the credit reference agencies are:

Customer Service Centre, P.O. Box 10036, Leicester, LE3 4FS. 0800 014 2955

Consumer Services Team, P.O. Box 491, Leeds, LS3 1WZ. 0330 024 7579

Customer Support Centre, P.O. Box 8000, Nottingham, NG80 7WF. 0844 481 8000

What if I need to dispute my credit report?

If you find a mistake on your report, notify the credit bureau right away. The bureau is required by law to investigate your complaint (or concern) and correct or remove any information that is inaccurate. The credit agency must then send a new report to anyone who has requested it within the last six months.

Can I provide a narrative to be included in the report?

This is known as a "Notice of Correction". Some people use this feature to explain a period of poor performance. For example, if someone viewing your report knows that the arrears on your mortgage were caused by a divorce or medical issue they may disregard them. However, it is down to the reader's discretion about whether they take heed of your carefully penned explanation.

How to improve your credit score

Do not feel disheartened if you have been turned down for credit even for a bad credit loan, or if you feel concerned that your credit history will harm your chances of getting a credit card or loan. There are various steps you can do to improve your credit score. It is important to understand that your credit score is not "set in stone" and that your next actions should be focused on improving and cleaning up your report. Alternatively, for those who have never borrowed before, you may need to actually build your credit history in order for any score to be accurate. In the absence of data, the lender is likely to assume the worst.

The following tips are sure to help improve your credit score:

Check your credit report and correct mistakes

You should aim to do this at least once a year to make sure that all the information it contains is accurate. If there are mistakes, be sure to notify the credit agency as soon as possible. Failing to correct mistakes could potentially stop you getting credit when you really need it.

Get yourself on the electoral roll

What's that we hear you say, well the electoral roll is an official list of people who are entitled to vote in an election. If you are not on the electoral roll, you will then find it very difficult to get credit because lenders will struggle to verify your identity and your address details.

Don't shop around too much

Think before applying for new credit as even making an application for credit will leave a footprint on your credit file, which will be visible to other lenders. Having multiple applications over a short period of time may suggest to lenders that you are in financial difficulty, which may cause them to turn your application down. Lenders like to see stability as well as sustainability.

Alternatively, some lenders offer a quotation search (basically a quick look at an individual's credit report). The benefit of a quotation search is that it prevents a 'footprint' being left on your profile. Quotation searches are good idea if you are shopping around for the best deal.

Close old credit card accounts and store cards

In addition to lenders looking at how much debt you are in, they also look at how much credit you have available before agreeing to help you, for example, if you have several credit cards with high limits, lenders may be reluctant to approve you. This is because if you spontaneously buy something luxurious and expensive, the amount of debt you are in could suddenly jump overnight, potentially leaving you at risk of failing to repay what you already owe. However, on the flip side a high credit limit with a large available balance indicates that you are not under financial stress so it can work both ways.

End financial associations with ex-partners

It is not an ideal situation to open a joint account or become joint debtors on a loan with someone who has a bad credit rating, because ultimately it can affect your credit score. When you open a joint account, it creates financial association between you and the other account holder. This could be problematic because lenders may look at their credit report when assessing your application and come to the conclusion that their circumstances could potentially affect your ability to make repayments. Ensure that the termination of your relationship is reflected in your credit report by contacting and asking the credit bureaus to add a "notice of disassociation" to your file.

Use credit responsibly

Aim to carry a low balance on your credit cards by paying off at least some of the principal every month or at least 6 months before you apply for a loan, this will show the new lender that you are being financially responsible. Another tip is to avoid drawing cash on your credit card if you can. Cash advances from your credit card is an expensive way to borrow because interest tends to be higher than an arranged overdraft say. In addition, credit card firms often charge cash advances by the day rather than granting any interest free periods.

Build a good credit history

To improve your chances of obtaining credit in the future, it is important to start building a good credit history as soon as possible. Show that you can repay on time and stay within the credit limit that you've been given, this will show lenders that you are responsible. If you have never borrowed money before (i.e. not actually having a credit history), then you will have limited access to loans and credit cards.

Summary

We hope you enjoyed reading this guide and understand more about credit reports and credit scores. If you need help improving your credit score or indeed want general information on loans, why not visit the Money Advice Service. If you want more information on our loans, check out our Questions page. Remember at the end of the day your credit report contains your data, so look after it and it will look after you.