When you apply to borrow money from a bank or lender, they will take a look at your personal circumstances and your financial history – and use this information to calculate your credit score. Many people believe that there is universal scoring system, but this is not true. Every lender has a different set of criteria and therefore a different scoring system. This means that if one lender turns you down, it does not necessarily mean the next lender will. There is also no such thing as a credit 'black list'.
What is a credit report?
Your credit report (also known as a credit file) is a document that contains information about your past financial behavior – most importantly how much money you have borrowed, who you borrowed it from, how much you still owe and whether or not you paid it back on time. The information on your credit report stays on file for 6 years.
What kind of information is in my report?
Some of the data in your credit file comes from publicly available sources. Lenders also share information about you. Credit reports usually contain the following:
- Details about your bank accounts & overdrafts
- A list of credit accounts
- Details of any late or missed payments
- Personal details such as your name, address and date of birth
- A list of your previous addresses
- Details of any bankruptcies or IVA's
- Details of any County Court Judgements you've had
- Whether you've had your home repossessed
- Whether you've moved home to avoid debts
Lenders will use your credit report to calculate your credit score. Be aware that every time you apply for credit, a 'mark' is made on your credit report.
How can I see my report?
The first step to improving your credit score is actually looking at your credit report!
Credit files are held by companies known as credit reference agencies. There are three of these companies in the UK – they are Experian, Equifax and Callcredit. They usually charge a fee for accessing your credit report, however you can get around this and view it for free. Experian offer a 30-day free trial, after which they charge around £ 15 a month. 30 days is plenty of time to tidy things up, after which you simply cancel the trial!
How can I improve my credit score?
1. Make sure everything is correct, and contact the credit reference agency if there are any mistakes.
2. Register on the electoral role – this proves that you live at your current address.
3. Show stability – frequently changing address or employment can put lenders off.
4. Always stay up to date with payments. Just one missed payment can harm your credit score.
5. Don't apply too often. This makes you appear desperate and credit-hungry. Also, when you do apply, ask the lender to perform a 'quotation search' – as this doesn't leave a trace on your credit file.
6. Close unused accounts and cancel unused cards. Access to too much credit – even if you are not using it – makes you a risk.
Finally, if you don't have a credit history then you need to build one up – with sensible borrowing, making sure you always keep up to date with repayments. If you have a bad credit history, then it's time to get your act together – keep up to date from now on and do what you can to pay off your existing debts as quickly as possible.