A credit report is essential for me, as before I apply for anything I always check my credit report so I can understand if I am in the position to obtain the best rates or deals. It gives me peace of mind knowing that I am in control of my finances rather than leaving this in the hands of anyone else. I have complete peace of mind knowing that if anything happens I will be alerted as soon as possible so the situation can be pro-actively managed.
Everyone should take time to manage their credit report and boost their credit score.
Banks and Lenders will score you differently with their own criteria, so you need to make yourself as attractive as possible to lenders, in the hope they will pick you out of the line-up…
So, getting in control of your credit report can have huge benefits for you in obtaining credit and the implications of a poor credit score.
All it takes is ten minutes out of your day and access to some of your financial documentation.
Here are the most frequently requested pieces of information that you’ll need at hand:
Our preferred supplier, Equifax, may ask other questions in order to check your identity, but if you have access to the documents mentioned above the registration process should be dramatically faster.
The world of credit ratings is rife with misinformation and misunderstanding - even some national newspapers have got it wrong on occasion. Much of it's because lenders don't want it understood, but here's what you really need to know to debunk the myths...
Each lender scores you differently and secretly.
This means just because one lender has rejected you, it doesn't automatically mean others will. Though after a rejection, it's always important to check your credit file for errors before applying again.
Of course, if you've got a poor credit history, or had problems, it can feel like you're blacklisted. Credit scoring is intuitive - would you lend to someone with a history of not repaying?
The tools lenders use to decide aren't universal either. As well as your credit file, they also look at application information and any past dealings they've had with you, and use the three sources of information to build up a picture of you.
This is not easy if you've little credit history. When you apply for a product, a 'credit check' is done. In practice, this means lenders pour all the data they have on you into a complicated algorithm. It's an attempt to predict your future behaviour based on what you've done in the past.
While a poor history counts against you, so does having little credit history as it makes predictions less certain.
Many people think lenders are credit scoring to see if you are a good or bad risk. They're not. They are credit scoring to see if you match up to a wish list of what makes a profitable customer. Of course, someone who is a bad risk is likely to be scored out as unprofitable by most companies, but risk is not the be all and end all.
Credit card companies may reject you for always repaying cards in full.
Banks score you based on products they'd like to sell you in the future.
In the past 10 years the credit landscape has almost completely shifted towards 'rate for risk'. This means almost every credit provider on the market uses your credit score to not only dictate whether they'll provide you with credit, but also what rate you'll get.
The most obvious way this manifests itself is in representative rates on loans (APRs).
While the Government pushes lenders to offer more credit, especially in the small business and mortgage worlds, ultimately it's still a commercial decision from firms about whether they want to lend.
This is done with a massive system of automated impersonal credit checks. It's often far cheaper for a lender to reject some people who it should be lending to than it is to accept some it shouldn't be lending to.
Here you are just a number, and you have to understand that, as frustrating as it may seem, it is as simple as that.
Since the credit crunch started, in 2007, the importance of credit scoring to our financial lives has grown rapidly. Here's a quick rundown of how credit scoring affects major financial areas.
If your credit score is poor, you'll be rejected. It really is that simple. If you're planning to get a new mortgage or remortgage, it's worth starting to manage your credit file at least a year in advance.
Your credit score dictates whether you'll be accepted, whether you'll be given promotional rates, and the APR you'll be charged afterwards.
Again, your credit score matters both for acceptance and the rate you'll pay.
If you're getting a contract mobile phone, you're credit-scored (usually because the company is spreading the cost of the handset over the contract, so for the firm, it's effectively a loan). If you're rejected, you won't get a contract, and will have to stick with pay as you go.
If you opt to pay monthly, then in practice the insurer is loaning you the money to pay upfront, spreading the cost over the year and charging you interest (often at 20%+ APR), so it does a credit check first.
Equifax compiles information from a variety of sources, allowing them to send data on any UK individual to prospective lenders. All lenders use at least one agency when assessing your file. This data comes from four main sources:
This is publicly available and contains address and residence details.
County court judgments (CCJs), decrees, IVAs, bankruptcies and other court debt orders indicate if you have a history of debt problems, including if someone has taken you to the Small Claims Court.
This includes records of other lenders that have searched your file when you've applied for credit, addresses you're linked to, or other people you have a financial association with.
The big gas and electricity firms do hard credit checks - these go on your file too.
Banks, building societies, utility companies and other organisations use credit reference agencies to share details of all your account behaviour on credit/store cards, loans, mortgages, bank accounts, energy and mobile phone contracts from the last six years.
About 350 million records a month are tracked. The first type of information and the most common is 'default data', which shows where you're officially in default.
Some lenders share 'full data' too. This can incorporate how you generally operate the account, from being the model customer to defaulting. Some, including Barclaycard, Capital One, GE Money and MBNA, share the amount you repay too (if it's the minimum, or if you repay in full) and whether you've a promotional deal (plus it is a little known fact that using your credit card for cash advances has a negative effect on your credit score). This can mean lenders can better weed out those just playing the system.
In addition, payday loan data is now normally reported, while doorstep lenders are legally obliged to share the data that they hold on you.
Even small errors can cause problems, so it's important you check through your file, below is a quick checklist.
Each lender scores you differently, so this is more art than science, especially because lenders are tight-lipped about what they're looking for. Yet there are practical things you can do that should help both reduce credit scoring and fraud scoring rejection.
As each lender has its own bespoke criteria, think of it like a beauty parade. You need to make yourself as attractive as possible to lenders, in the hope they’ll pick you out of the line-up...
Your credit reference files, held at Equifax, contain enormous amounts of data on you. Errors do sometimes happen and can negatively applications, so it's important to check your file regularly and to go through them line by line to check nothing's wrong.
Credit scoring is all about trying to predict your future behaviour based on your past history. Those with a poor history do poorly; but so those with little credit history, as then predicting is tough.
You need to build a decent recent history to show that you can be responsible with credit and use it well. The catch-22 is that as you have a poor credit history, getting credit is difficult.
If you're not on the electoral roll, it's unlikely you'll get granted credit when you apply, so sign up immediately. Credit reference agencies are allowed to use the full register which you can't opt out of and that you should, by law, be on. The electoral roll can be a factor in scoring but even where it isn't, not being on it can lead to delays as lenders also use it help check your address and ID.
Never miss or be late on any credit repayments - it can have a disproportionate negative effect. Sounds obvious? Well, it is. Even if you're struggling, try not to default or miss payments, it can have a disproportionate hit. Doing this once or twice could cause problems that can cost you for years. Defaults in the previous 12 months will hurt you the most.
So, getting in control of your credit report can have huge benefits for you in obtaining credit and avoiding the lifestyle implications of poor debt management.