What is a credit report? It’s a common question, yet most people aren’t fully knowledgeable about its significance. A credit report reflects an individual’s financial standing in crucial areas such as debt repayment history and current accounts. Knowing how to read it is the first step towards taking control of your finances!
When banks or lenders consider granting you credit, they will often check your credit file data to assess the level of credit risk. This information contained in your financial CV offers a snapshot into past behaviour and determines whether you have proven yourself as a responsible borrower.
Feeling confused about your credit report? Keep reading Become Debt Free’s guide to learn more about this important aspect of lending.
What Information Is in a Credit Report?
Your credit report contains a record of the financial loans and credits you have obtained from banks, building societies, and credit card companies. This information is collected to provide an overview of your past debt obligations as well as what current money-borrowing options are available to you.
Along with all this information, your credit report will also include the following information:
- Personal details such as your name, address and date of birth
- Information on whether you are registered on the electoral roll at your address
- Existing credit you still owe (loans, credit card accounts, mortgage etc.)
- Any late payments made
- Any missed payments and defaulted payments
- Service & utility agreements (mobile phone, gas supplier etc.)
- If your home has been subject to a repossession
- If you have filed for personal insolvency (bankruptcy, Debt Relief Order or an IVA)
- Any county court judgments made against you.
By and large, this data is usually held for up to six years. Credit providers are typically only concerned with your more current credit history so any issues will eventually go away from your record.
Who Creates Your Credit Report?
Credit reference agencies, also known as CRAs, collect data about how you manage your credit and whether or not you’re making timely repayments. Here in the UK, there are three key Credit Reference Agencies that every individual should be aware of that compile credit reports:
- TransUnion (Credit Karma also enables free access to data from Transunion credit report)
- Experian (Money Saving Expert’s Credit Club also enables free access to date from Experian credit report)
- Equifax (Clear Score also enables free access to data from Equifax credit report)
Each CRA will maintain its own file on you. This file is called a credit report or credit file and varies depending on the Credit Reference Agency. As noted above, you can access your free credit report through several online services such as Credit Karma and Clear Score.
Who Wants to See Your Credit Report?
When you apply for credit, any financial institution that you are hoping to secure financing through will check your credit reports regularly and credit history. This includes banks, mobile phone providers and much more. Your employer or landlord may have legal access to view certain aspects of your credit report as well; however they won’t be able to retrieve the same amount of information that a lender is allowed to see.
Lenders will utilise this information to with other information your provide them to allocate you a credit score and how much of a financial risk you are when it comes to paying the money back.
When and How to Check Your Credit Report
It’s your legal right to request a copy of your credit report and view the data that lenders are looking at. Credit reporting agencies must provide this freely to you. If you prefer, though, you can sign up for a credit monitoring service which will give you access to an up-to-date version of your report whenever desired.
To ensure accuracy, it is wise to obtain a copy of your credit report from all three major credit reference agencies. Furthermore, reviewing and monitoring your credit periodically can reduce the possibility of an incorrect record resulting in rejection when applying for new lines of credit. Taking these precautions will help keep you informed on any changes or discrepancies that may arise.
What Are Credit Scores?
Your credit score is an essential factor in deciding your eligibility to receive a loan or credit card. Lenders will use their own internal credit scoring to predict whether you will repay the borrowed money promptly and responsibly.
By analysing the data from your credit report, lenders will create your credit score. This number is used to determine whether you should be granted access to a loan. It is also used to determine whether qualify for a desirable credit limit and also the interest rate on products such as mortgages, loans and even some types of credit cards.
Don’t be discouraged if you encounter a lender who rejects your application, as each company uses diverse methods to calculate credit scores. You could still have luck with other lenders, so don’t give up hope just yet! Enhancing Your Credit Score is essential in order to increase the likelihood of successful loan applications – keep that in mind when considering obtaining finance from various sources. However, do keep in mind that multiple applications in a short space of time can have a short-term damaging effect on your credit score.
How Can You Improve Your Credit Score?
As you make your payments on time, your credit score will benefit. If at any point in time, you discover that this score is not up to par, there are numerous ways to improve it quickly and efficiently!
- Check for any errors on your credit file — Errors are quite common and even changes can have an impact on your score.
- Make sure you are registered on the electoral roll — Not being registered makes it much more difficult to obtain new credit.
- Are you financially linked to another person? — Having a friend, partner or family member’s credit accounts linked to yours could negatively affect your credit score if they have a poor credit file.
- Have an excellent payment history – Ensure you pay your bills on time and for at least the minimum payment due — The easiest way to improve your credit score.
- Check for CCJs (County Court Judgements) — Having a CCJ on your record will have a hugely negative impact which will make obtaining new credit very difficult.
- Move home less frequently – Creditors usually prefer individuals with stable address histories as this indicates that they are more consistent and reliable. Creditors will usually look at current and previous addresses from the past 6 years.
- Make sure you don’t have high levels of unmanageable debt — Always aim to pay off as much debt as you can before trying to borrow more.
Is Your Levels of Debt Becoming Unmanageable?
Are you already struggling with your debts and looking for a debt solution that can help you move on and start the steady repair of your credit report and to a brighter future.
Contact us here at Become Debt Free today on 0113 237 9503 or complete the online form to speak to one of our friendly and professional advisors who will listen to your circumstances and discuss what debt solutions are suitable to your circumstances. Whether that be a Debt Management Plan, a Debt Relief Order, Bankruptcy or an Individual Voluntary Arrangement (IVA).
