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Credit Score Explained

Published: 20 Aug 2019

The Basics

  • All financially-active UK citizens aged 18 or over will have a credit file, which is a collection of information relating to who you are, where you live, and certain financial details spanning the last 6 years.
  • This information is used to generate a credit score, which provides lenders such as credit card, and personal loan companies with an indication of how well you manage your money. If you have missed or are late in making payments on an existing credit or loan arrangement this can negatively impact on your credit score.
  • It may also be used by other companies when you apply for certain services, such as phone contracts or household utilities, for example.
  • You have more than one credit file. UK data is held by three main credit reference agencies; TransUnion, Experian and Equifax. Lenders may use one, two or all three when making a lending decision. We would always suggest that you check your credit report with all three credit referencing agencies to ensure they are accurate.

Let’s Break It Down…

Information held on your Credit File

Why this information is included

How this benefits YOU

Issues to look out for

Your full name and address This is essential information which allows companies to be sure they’ve got the right information for the right person. Having your name and address correct and up to date ensures you are provided with your full and current credit report to check everything is relevant and there’s no adverse data showing.  Make sure everything is spelt correctly and is fully up-to-date – if not, a lender may not be confident that you are who you say you are.
Your electoral registration It gives companies another layer of security when it comes to validating you at your current address.

You are further protected from identity theft and fraud.

Being registered on the Electoral Register can have a positive effect on your credit score.
If you are not registered on the electoral register, or if you are registered to a previous address, some lenders may not process your application further; it’s the law to register.
Court records which indicate debt issues

If you have had a CCJ (County Court Judgement), IVA (Individual Voluntary Agreement), Bankruptcy, or any other court debt orders, then this shows the lender that you have failed to repay in the past.

Allowing lenders and other companies to see this information protects you from being offered credit that you may not be able to repay in your current circumstances. Remember, only the last 6 years are taken into consideration, so it is possible to improve this area if you need to.

If you have been affected by any of these debt-related court orders in the past, make sure the details are all correct. If the debt isn’t removed from your file after 6 years or you wish to correct the status of the debt, then you can dispute this with the credit referencing agency directly.

Previous addresses and people you are linked with financially As well as helping to validate your identity, this information provides the lenders with a full picture of your credit history and can protect you and the lender from over indebtedness.

Any information which helps to prove your identity protects you from fraud, so past addresses being present is often a good thing. This way you can monitor the information being reported in your name; at all of the addresses you have been financially associated with. If you see an item on your report which you believe is inaccurate then you can raise a dispute with the Credit referencing agency reporting it. 

 

 Additionally, if you have a joint account, card or loan with someone whose credit score is very good, your own may receive a boost as a result.

Lenders will often take into consideration anyone who you are financially associated with when assessing your ability to pay back what you’ve borrowed.  If you still have joint accounts open with past housemates or an ex-partner, even if you don’t use them, can affect the outcome of a credit application and so you should close all old and unused accounts to prevent this from becoming a long-term issue.

Account behaviour for any and all credit/store cards, unsecured loans, mortgages, bank accounts, mobile contracts and energy bills

Your previous account performance lets your lenders know whether you’ve been able to pay credit on time, how you manage your credit card(s), whether you keep up with mortgage and utility payments and whether you have an overdraft on your current account, among other things. All of this information gives clues as to what kind of customer you’ll be. 

You need to be able to show you can handle credit in order to boost your score. If you have been good at keeping up with your repayments, all of this will automatically be listed on your credit file and over time you’ll find you can get better interest rates and a wider choice.

Any incorrect information here can really affect your rating, so it’s really important that you check for any discrepancies. If you have paid off a loan and the account is yet to be officially closed, contact the original lender and request that they amend the account to show in its current state – you are not able to make this amendment yourself.

Who has searched your file Lenders will want to see if you have made other applications, particularly ones very recently. This is because it may change what you have declared as your current financial situation. It can also indicate high-risk individuals who are applying for lots of credit at once. As long as you are measured in the number of applications you make, this can show that you have put thought into your financial situation and acted accordingly. If you have only applied to one or two places at a time, you’ll look more favourable as a customer. If you do not recognise the company who has performed the search or you believe the search has been conducted without your consent, you must flag this with both the company and the credit referencing agency, as it may indicate fraud.

How to Check Your Credit File

It’s a good idea to check your credit file with each of the three main credit reference agencies to ensure your information is correct and up to date. Checking your report regularly for any mistakes is very important, as anything that can’t be removed will stay on your file for 6 years; potentially affecting your financial options in the years to come.

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