If you ever want to borrow money, whether for a mortgage, loan or credit card, your credit report will be key to deciding whether your application is accepted.
If you are about to apply for amy of these - or even a new mobile phone contract - it’s wise to check your credit report in advance.
What is a credit report?
Most people will have a credit report, although the amount of information on it may differ - depending on whether (and how much) credit you have used now and in the past.
The report – also known as a credit record, credit history or credit file – shows what you have borrowed and whether you have made the agreed repayments in full and on time. It will also show applications for credit that you have made, even if you didn’t go ahead with them or you were turned down.
It will also show details of any credit you have access to, such as credit cards and overdrafts, including joint credit accounts that you hold with another person.
Your report will include personal details as well, such as your current and previous addresses. It will also show details of any County Court Judgments (CCJs) and bankruptcies.
Reports are compiled and held by the UK’s credit reference agencies (often referred to as CRAs): Experian, Callcredit and Equifax.
These companies collate information from various sources, including public records such as the electoral roll and credit account information from lenders.
Why should you check your credit report?
If a lender finds any problems with your credit report – for example, if you have been late with some repayments, or your address on your loan application doesn’t match the one on your report – there is an increased chance they will reject you as a customer.
Checking your report gives you the chance to put matters right, and correct any mistakes before approaching lenders.
Keeping regular tabs on your report – which is also known as a credit record, credit history or credit file – also helps you check no one is taking loans out in your name - a crime known as identity fraud.
What can I do if I am a victim of identity theft?
How to check your credit report
To check your report you need to get in touch with credit reference agencies Experian, Callcredit or Equifax.
You have a legal right to request a copy of your report – known as the statutory report – to be posted to you or made available to you online.
There is a chance that your information varies between the three agencies, so it’s worth contacting each one.
The agencies also provide more comprehensive assistance such as monitoring, to help ensure you don’t fall victim to identity fraud. They can also show you credit products you’re more likely to be accepted for, based on the information in your credit report. Expect to pay a monthly fee for this kind of service.
Any blemishes to your credit report could mean you are turned down for credit, or at best offered deals with more expensive terms.
How are credit reports used?
Financial companies, regulated by the Financial Conduct Authority (FCA), are allowed to look at your credit report (as long as they have your permission) when deciding whether to accept your application for a loan, credit card or mortgage.
They will each have their own criteria for deciding whether to lend to someone and will use your credit report, which they will have obtained from one of the three CRAs.
If you have a history of late or missed repayments, there is a higher chance of being rejected. The same is true if the address you have supplied on your loan application is different from the current address you are registered at on the electoral roll.
If you are turned down for credit, the company is not obligated to give you specific reasons.
Banks and building societies aren’t, however, the only organisations that can check your credit report. Potential landlords and employers can also make checks before agreeing to take you on as a tenant or as member of staff, for example. This can help them to confirm your identity.
How does your credit report affect borrowing?
Lenders use a variety of different information to give you a credit score, which helps them determine whether they will lend to you and at what interest rate.
Those who have borrowed money in the past, and showed they can make repayments on time, have more chance of making a successful application.
If your report is less than squeaky clean, it could cost you. Banks have been stung badly in the past by being too lenient in approving loan applications and losing money through bad debts – particularly mortgages.
That’s why they have tightened their lending criteria to reduce their number of high-risk borrowers. Only the owners of the cleanest credit files are now granted the best deals.
How to improve your credit report score
Lenders like reliable, responsible customers. Some prefer candidates for loans to own their own home (although this is not essential) and/or to have lived at the same address for at least a year. Being on the electoral register will help too. And quite simply: just make sure you repay all credit agreements on time.
If you have never had a credit card or any form of debt, this may not be as helpful with an application as you might think. Lenders usually feel more comfortable dealing with people who have a track record of paying off loans.
With this in mind, you may want to consider taking out a credit card, spending some money on it and paying it off each month, to illustrate you can do this sensibly to build up a decent credit score.
You should always consider whether you can afford to repay any credit you apply for and never take out more than you can afford.
How to correct mistakes on your credit report
If you find an error on your report, such as a late payment that you actually made on time, ask the lender who has recorded the wrong information to put the matter right.
Get in touch with the company that has put the erroneous information on your record: if they agree a mistake has been made, they should amend the record.
If the lender refuses or disputes your view, you can ask the credit agency to contact the lender on your behalf to dispute the information. The credit reference agency can only make changes with the permission of the company that recorded it.
You can also put a note on your credit report to explain the circumstances around the incorrect entry; for example, if you missed a payment because you were ill or unable to work.
Furthermore, you can explain on your report that any late or missed payments were due to exceptional circumstances, or events beyond your control.
How long does information stay on a credit report?
Details such as missed repayments, or credit agreements that have come to an end, typically stay on your credit report for at least six years.
Pay your debts on time to boost your credit report
The simplest way to improve your credit report is to make sure you're paying off your debts. Pay at least the minimum payment amount every month and ensure that your payments are always on time.
If you manage your debts well, it shows you can borrow money and pay it back. Late and missing payments are recorded on your credit report and indicate that you are an unreliable payer, which will make lenders see you as a risk.
Register on the electoral roll
Making sure your name is on the electoral roll at your current address will help significantly. It’s an important step to take before you apply for any credit under a new address. This is because lenders use the electoral register information to help them prove you are who you say you are.
If your address is somehow out of date, make doubly sure you have registered on the electoral roll at your current address.
Consider getting a credit card
Taking out credit may seem an odd way to improve your credit report, but it helps show lenders that you are a reliable borrower.
If you have very little credit history, for example, getting a card and managing it sensibly can help to improve your credit report. This means only spending what you can afford on the card and paying off the balance in full and on time every month.
Spread out applications for credit
Every time you apply for credit, the lender will check your credit report. This will leave a 'footprint' - a sign that a credit check has taken place – which other lenders can see.
So if you apply for lots of credit cards or loans at the same time you run the risk of appearing desperate for cash, and this could work against you in the future.
Get into good financial habits to boost your credit report
If the problems with your record are genuine, there is no quick fix. But you can take out some new credit to show you’re capable of making repayments on time.
Some lenders offer credit-building cards which are aimed at those with damaged credit histories. These normally charge high rates of interest, but they can be avoided if you pay off your bills immediately.
Cancel defunct credit agreements to boost your credit report
You can also improve your record by cancelling any credit agreements you no longer use, and by making sure you don’t make too many applications for credit in a short period of time.
Take control of your finances and improve your credit score with free access to your Experian credit report for 30 days. Find out more.