Understanding your credit report
Catherine Alexander
Partner
In the UK the three main Credit Reference Agencies (CRAs), Equifax, Experian and TransUnion, maintain millions of consumers' credit histories, this information is supplied by lenders and other institutions. Each file includes records of your history of borrowing and the way that you maintain any monthly payments. For verification of identity, your credit file also holds information such as your current name (and any other names you may have used in the past), current and past addresses, and your date of birth.
Your credit file is constantly being updated with information provided by your lenders and other institutions. When a company such as a lender, insurance provider or potential employer requests to check your credit, the CRAs pull the contents of your credit file that are relevant and disclosable by law to the company, and package it in a document known as a credit report.
Your credit report does not contain all the data in your credit file, usually only records for the last seven years. Lenders and other companies may use your credit report to learn more about your previous borrowing experience, which helps them make decisions about granting you credit. Credit reports are also used to calculate your credit scores, verify your identity and for other purposes within certain limits defined under the law.
What your credit report shows:
How much you currently owe.
Any late, partial or missed payments, current or recent default notices and defaulted accounts.
Any County Court judgments (CCJs), decrees and money judgements raised against you.
Details of home repossession or debts secured against a previous address.
Details of current or recent insolvency – including bankruptcy, individual voluntary arrangement (IVA) and debt relief order (DRO).
If you have taken out a credit agreement in joint names, your credit file will show a link or association to the other person. This means your poor credit history may affect them and vice versa. If you have any joint accounts included in your credit file, but you no longer have any connection to the pther person, you can ask for your credit files to be disassociated. This removes the link between your credit files. You can only do this if the joint account has been paid off in full and you do not live with the other person.
What your credit report does not show:
The amount of money held in any current or savings accounts.
How much you earn.
Details of student loans (awarded after 1998).
Council tax arrears, driving or parking fines.
Your criminal record.
Your medical history.
Information about missed payments, defaults or CCJs will stay on your credit file for six years. These details are always removed from your credit file after six years, even if the debt itself is still unpaid.
Details of the following stay on your credit file for six years from the date they were recorded:
Defaults on accounts.
Debts you’ve paid off or settled in full.
Partial settlements where a creditor has agreed to accept a reduced amount and write off the remainder of a debt.
Bankruptcy, DRO, IVA or protected trust deeds being approved.
If your credit report shows a long history of on-time payments, it may mean you have a higher credit score, this will help you get credit cards and loans on more favorable terms. Conversely, late payments, bankruptcy and similar marks on your credit reports can lead to a lower credit score and make it harder for you to get approved for credit cards and loans, or cause a lender to charge a higher interest rate.
Except for your personal information, everything listed in your credit reports has the potential to affect your credit score, with payment history and credit utilisation being the two most important factors. Lenders like to see a healthy combination of well managed accounts, such as credit cards, a car loan and a mortgage, so a good credit mix can positively affect your credit score too. Those with the highest credit scores tend to keep their utilisation rates below 10%, utilisation rates of approximately 30% or more will negatively impact your credit score. To calculate your utilisation, divide your outstanding balance on each revolving account by its credit limit and multiply by 100 to express the answer as a percentage.
Your credit score indicates how reliable you are at borrowing and repaying money. Each CRA has its own scoring system, so your credit score may vary slightly depending on which one you choose. However, you’ll probably find that you fall into the same category across all of them. Scores range from Excellent to Very Poor.
Factors which can harm your credit score:
A history of late or missed payments
Going over your credit limit
Defaults, bankruptcies, insolvencies and CCJs
Multiple credit applications in a short space of time
Joint accounts with someone with a bad credit record
Frequently withdrawing cash from your credit card
Undetected fraudulent activity on your credit report
Not being on the electoral roll
Moving house too often
It is a good idea to check your credit report periodically. You can do this for free with many third party companies, or you can request your credit report directly from one of the main CRAs. If you are looking to take out credit, think about checking your report a few months in advance to make sure everything is still on track, that way you will still have time to make changes in preparation for any new application. Even if your credit score doesn't look that great, it's not a total disaster. There may be simple things you can do to repair it over time.
This article isn’t personal advice. If you’re not sure whether a course of action is right for you, ask for financial advice.
