Your credit report can influence financial life events such as applying for a personal loan or getting a mortgage, but it can also have an impact on smaller things like taking out a phone contract or opening a new bank account.
It’s important to understand what your credit report is and what can affect it. In this guide, we’ll share everything you need to know…
About credit reports
A credit report is essentially a record of how you have managed debt in the past.
We all have a credit report – it provides just some of the information a potential lender will use to decide whether they want to offer you credit such as a personal loan, credit card or mortgage and at what interest rate.
Lenders will look at your credit history to establish how reliable you will be as a borrower based on factors like your total amount of current debt, what other finance products you have and whether you make your repayments on time.
How does a credit file work?
Credit reports are compiled by credit reference agencies, the main three being Experian, Equifax and TransUnion. These credit reference agencies compile public information and credit information (provided by lenders) together and match it to your name, address and date of birth.
When a lender wishes to assess a credit application, they refer to your credit report to give them information about your creditworthiness, affordability and past debt management.
If you take out a credit commitment (whether that be a loan, credit card, mortgage, mobile phone contract or even utilities), you consent for the lender to share your information with the credit bureau. The lender will then provide information on when your account was opened, the term, your outstanding balance, credit limit and your current payment status on a monthly basis, ensuring your credit report is up to date should another lender wish to assess it.
Usually, lenders are able to conduct their affordability and credit risk checks using just the information provided by the credit bureaus. Occasionally, however, lenders may wish to see your bank statements to help to validate your income. This helps lenders make sure you can afford to take on additional debt.
Do I need to worry about the information in my credit report?
If you pay your credit commitments on time and take out credit responsibly as required, it’s likely you won’t need to go through your credit file with a fine-tooth comb too often. It’s recommended to check your credit report once or twice a year to ensure there are no errors and your file is up to date.
However, it is worth paying more attention to your credit information and ensuring your file is up to date if:
- You have very little past credit experience
- You’ve experienced financial difficulties in the past but you’re now ready to utilise credit again
- You believe you have a good credit history, but want to make sure you have the best chance of getting the lowest interest rate when applying for a personal loan
What’s the difference between a credit report and credit score?
A credit score is a number that sums up your creditworthiness at a glance, based on the information found in your credit report. It is essentially used to predict how likely you are to pay back (and pay back on time) any money you borrow.
A credit report provides a more detailed overview of your financial state-of-play, including a list of your accounts, how much you currently owe and whether you’ve previously managed debt responsibly.
Different credit reference agencies will provide different scores, despite these scores being based on similar information. This is nothing to worry about, as each score still accurately reflects your ability to manage money.
What information shows on my credit report?
A credit report summarises how you handle debt, as it details how much money you’ve borrowed and whether you’ve paid it back on time. Information typically stays on your credit file for five years.
Your credit report will include:
- Personal information, such as your name, address history, date of birth and employment history
- Whether you’re on the electoral roll at your current address
- A list of your past and present financial accounts, including credit accounts, current accounts and loans
- People you’re financially associated with
- How much you currently owe lenders
- How many times your credit report has been checked (checks will remain on your credit record for up to two years)
- Up to seven years of payment history, including records of late payments or missed payments
- Any County Court Judgments (CCJs) made against you
- Whether your home has been repossessed or you have moved away owing money
- Whether you have been declared bankrupt or have an Individual Voluntary Arrangement (IVA) in the past seven or ten years, depending on the type of bankruptcy
Your credit report will not show the amount of money in your current account or savings accounts, salary, any student loans, criminal record, medical history, parking or driving fines, or council tax arrears.
It’s worth noting that even though income is not recorded on your credit file, banks may provide credit reference agencies with additional information on how much goes into a current account to validate income.
How do I check my credit report?
Credit reference agencies each hold their own version of your credit report. The easiest way to check your credit report is to apply through their partner websites: MoneySavingExpert’s Credit Club (Experian), ClearScore (Equifax) and Credit Karma (TransUnion). You can also contact the credit reference agencies directly to request a paper copy of your credit report.
All credit reference agencies are legally required to provide you with a copy of your credit report for free should you request it and checking your report won’t impact your credit score either.
Though the information they hold can differ, all credit reference agencies will provide a credit report containing the same key data as discussed earlier on in this article. We recommend checking your report through all three agencies to be on the safe side and ensure the information held by each individual agency is correct.
How much does it cost to check my credit file?
You can check your credit reports as frequently as you’d like with no penalties or fees.
How often should I check my credit report?
For most people, it’s a good idea to check your credit report at least once or twice a year, as well as before applying for any type of finance. This makes it easier to correct any errors which could result in your application being denied or reduce your chance of being offered the most competitive rates.
This is also a good opportunity to check for any fraudulent loan applications made in your name which can be extremely damaging to your credit report, especially when the debt is left unpaid.
If you manage your debt responsibly and have never missed or made a late payment in the past, you shouldn’t need to worry too much about your credit report. That said, it’s still a good idea to make sure your credit file is kept up to date and doesn’t include any information you don’t recognise, which could be a sign of fraudulent activity.
Do be aware that companies who provide information to credit reference agencies typically only do so once per month. It may also take the credit reference agencies time to process the information. This means there can be a slight delay in your current position being updated in your file, which is worth noting if you were expecting your credit report to be updated in real-time.
Will my credit report affect my ability to borrow?
When you apply to borrow money, your lender will usually review your credit file to help them assess both your credit risk and your affordability.
Lenders want to know two main things:
- You’re not likely to default on payments
- You will be able to comfortably take on the extra debt without the repayments causing you financial difficulty
The best way to find out this information is to review your credit file, to help them determine whether you would be a good fit for their specific product.
What can affect my credit report?
Many factors are recorded on your credit file that could impact a lending decision. These include:
Late or missed payments
Any late or missed payment will be marked on your credit report and will have a negative effect on your overall score.
What’s more, a missed payment can stay on your account for up to 6 years, so it’s vital that you make your minimum payments on all outstanding agreements each month.
If you’re struggling to make your repayments, the worst thing you can do is ignore the issue and hope that it goes away – it won’t. It’s far better to contact the lender and explain your situation to see what payment plan can be put in place.
Using too much of your credit limit
Just because you have a high credit limit, doesn’t mean you should go and spend it all at once.
If you’re constantly at your limit and only paying back the minimum every month, this can be a red flag to lenders.
Spending no more than 30% of your overall limit will demonstrate your ability to manage your money more effectively.
Moving home too frequently
Lenders like to know that you’re reliable and stable. One way they do this is by checking how long you lived at past addresses.
Do you have a tendency of moving often or did you fail to register on the electoral roll at your most recent address? This can go against you in the long run, even if you pay all your bills on time.
Top tip: If you have moved around a little bit, make sure all your financial accounts are registered at your current address (the one you’re registered to vote at).
Applying for credit
Don’t make the mistake of applying for loan after loan in quick succession as it could damage your credit file. When a finance company processes an application for credit it will be recorded as a hard credit check, which is visible to lenders making future searches. While those lenders won’t be able to see whether your application was accepted or denied, too many hard searches on your credit report could indicate financial instability and may be seen as a red flag.
If you want to compare APRs, look for price comparison sites or lenders that conduct soft searches instead as these don’t show on your file.
CCJs, IVAs or bankruptcy
Having a Country Court Judgement (CCJ), an Individual Voluntary Arrangement (IVA) or declaring bankruptcy will appear on your credit report and could make it difficult for you to borrow from a reputable firm.
Mistakes on your credit file
Sometimes these things happen and, even if it’s not your fault, they can still have a negative impact. By keeping on top of your credit report and checking it often, you will be able to spot errors and apply to have these rectified by contacting the CRA directly.
Common mistakes to look out for are incorrect names or addresses, whether you’re on the electoral roll and your current debt level.
Having no lending history
As silly as it sounds, if you owe nothing and pay all your bills outright then you might end up with no credit history which can be as harmful as a bad one. This is because lenders don’t know whether you’ll be a reliable customer or not.
Try using a credit card to pay for a regular monthly outgoing, such as your weekly shop, then pay it off in full before it incurs any interest. This will demonstrate you can handle debt responsibly and pay back the money you borrow on time.
Will my credit report affect my ability to take out a personal loan?
Put simply – yes. Lenders like to know you’re a ‘safe bet’ and will evaluate your credit report and credit score to make a decision. If you can prove you can manage your debts responsibly, you’re more likely to be accepted for a personal loan.
If you’ve checked your credit report and you’re sure the information is correct, you might decide it’s the right time to apply for a personal loan. You could be eligible to borrow between £1,000 and £35,000 with competitive rates from as low as 7.4% APR Representative (£7,500-£25,000).
Sophie Venner is a Yorkshire-based content writer specialising in crafting content for the financial services industry. She’s written over 300 articles on finance, but she’s covered everything from insurance to digital marketing trends. Her content has been featured in the likes of Semrush, Digital Marketing Magazine and Insurance Business. In her spare time, you won’t find Sophie far from a notepad and pen as she squirrels away trying to write a novel.
Wednesday 24th May 2023