Understanding the world of credit reports

Representative Example

Total amount of credit £80, duration of the agreement 29 days, rate of interest 292% per annum (fixed), total amount payable (in one repayment) £98.56. Representative 1281.8% APR.

Credit reports and Credit Reference Agencies (CRA's) are all something that we kind of know something about but to really get to grips with these concepts we need to dig deep. The nature of credit is such that it can take on many different forms and functions. This ranges from payday loans, online loans and credit cards, all the way to the larger denominations of mortgages, long term loans and student loans.

The main objective of a credit arrangement is to allow customers to purchase goods or services with money borrowed from a creditor. Such arrangements are rooted in a combination of trust, that any borrowed sums will be repaid on a later date, as well as the risk that both parties are willing to accept for this transaction to take place.

Credit providers such as payday lenders, mortgage providers and brokerage services use credit reports to determine whether they wish to enter a legal binding credit agreement with an individual. In order to further our understanding of what makes up a credit report, it is essential that we define what a credit report is and delve into this potentially secretive world.

A credit report is a compilation of information relating to one's financial history. This comprises the borrowing, spending and repayment habits of an individual over a specific period of time. For example, information based on the spending limit, spending history and repayment frequency on your credit card will be visible to anyone with access to your credit report. This information enables companies, lenders and other relevant institutions to see how well you have managed, sustained and honoured your repayments over time.

Man with magnifying glass

Missed repayment date(s) and late repayments will show up on credit reports for a minimum period of six years. Information about any additional debt such as bankruptcies, IVA's, or any enforcement by debt collection agencies will also be noted down on credit reports for the same duration. If the terms of an agreement are honoured i.e. credit is repaid as per the contractual agreement in place, a positive reflection of such will appear on one's credit report.

To better understand what and how credit reports are used we will delve into key aspects that make up a credit report. You may use what you learn to potentially help improve your credit report and your overall financial health.

Explore more articles on credit reports and their uses:

Credit reports: who uses the information available?

How and when to check your credit score and credit report?

What is a credit score, why do you have one and what does it mean?

What are the different factors that affect your credit score?

Fluctuating credit scores: why does this happen?

Improving your credit score: how should you do this?

5 steps to take control of and improve your credit report

Debunking myths about credit scores and credit reports

The electoral roll and its implications to your credit score

What is in your credit report?

A credit report contains both your personal information as well as your detailed credit history. This may include, but is not limited to, the following:

  • Identity checks – current and previous full names and dates of birth.
  • Residential history - current and previous home addresses.
  • Credit history - an empirical record of credit accounts and balances, including bank and credit card commitments and other outstanding credit accounts such as unpaid utility and tax bills.
  • Joint/shared accounts - any joint or shared accounts, meaning there is another individual linked to a credit account e.g. a partner, family member, friend or business relation.
  • Debt information - such as bankruptcies, individual voluntary arrangements (IVA's), county court related judgements, property repossessions and collections enforced by relevant agencies.
  • Electoral roll - credit reports cross-reference with the electoral roll to ensure personal details such as names and addresses match with those listed on the electoral registry.
  • Fraud checks - details about your fraud history i.e. whether you have committed any acts of fraud or have been a victim of any fraud related incidents.

Individuals are also eligible to append a Notice of Correction (NOC) to their credit report. This is a short, concise statement detailing any information that an individual believes creditors should consider when accessing their credit reports. For example, if you have previously defaulted on a loan but had reasonable circumstances to justify so, you can append a NOC to your credit report explaining so. This information will then be taken onboard when your credit report is looked at by future creditors.

Who compiles your credit report?

Credit reports are published and distributed by CRA's. These organisations gather all your necessary and relevant information into a concise report or credit file. The three main Credit Reference Agencies in the UK are Experian, Equifax and TransUnion.

Information about your repayment history is reported to one or more of the Credit Reference Agencies by your credit providers and will be assessed when your credit report is being compiled. Once an agency obtains sufficient information about an individual, they will produce a full credit report which is then utilised to calculate one's credit score.

Each agency operates individually and thus differs in their methods of collecting, reporting and distributing data. The information that appears on your credit report may therefore vary between each of these agencies. Experian may have your full name and current home address whereas Equifax and TransUnion may have your full name along with your previous and current home addresses. These slight differences may affect how your credit score is reflected in the credit report produced by each agency.

It should be noted that not all creditors provide information to each of the three agencies. Whilst some may do so, most will only report to either one or two CRA's of their choice. Any creditor, whether it be a bank, building society or payday lender, will have access to different CRA's depending on the agreement made between both parties. For example, one bank may provide information to all three Credit Reference Agencies, however another bank may only use Experian and TransUnion. Therefore, when considering the information that will eventually form your credit report, it may be useful to primarily consider creditors that uses a CRA of your choice.

Furthermore, all three of the renowned CRAs in the UK may not receive information from creditors outside the UK. Albeit all three having operations in the US and many other countries, an individual's personal and financial information is not shared across country borders due to the many cross-border legislations in place.