A lot of scaremongering takes place surrounding your credit history, what it means for your day-to-day life and your future financial decisions. Our guest blogger and Personal Finance Expert, Andrew Hagger, is on hand to take you through what matters, the common credit myths, and tips on how to boost your score.
Checking your credit report
The first step is to sign up for a copy of your own personal credit report. You can do this online and for free direct via credit reference agencies such as Experian and Equifax or through third party providers including Clearscore and TotallyMoney.
Once you’re set up, you’ll get an updated report and score emailed to your inbox every month, making it easy for you to keep a close eye on your important financial information.
The first time you get hold of a copy of your credit report, take a little time to read through of all your personal and financial information. These reports are not always 100% correct, so make sure you’re happy with all the details held on your file.
These are the sort of things you’ll find in your report:
• Personal information: your name, date of birth and address – including previous addresses going back 6 years.
• Financial associations with another person, such as a joint mortgage or borrowing.
• Whether you’re on the Electoral Roll,meaning you are registered to vote at your current address.
• Your borrowing: how much you owe and whether you have paid on time, and how long you’ve had each account. This will include mortgages, credit cards, store cards, personal loans and overdrafts.
• Any County Court Judgements (CCJs),bankruptcies and Individual Voluntary Arrangements (IVAs).
• Searches carried out on your account by financial providers – including date and purpose of search.
These are a few things that do not appear on your credit record:
• Savings account information
• Your salary details
• Criminal record(s)
• Medical history
• Parking or driving fines
• Council tax arrears
• If you have an agreed mortgage holiday or payment freeze due to Covid-19, this will not appear on your record and will not have a negative impact on your score.
Much of the information shown on your credit report is confidential, and that’s why it’s managed by Credit Reference Agencies such as those mentioned. It’s important to remember that these agencies may manage your report, but it is the lender who makes a decision to offer credit of any kind.
What affects your credit score?
The factors that have the biggest negative impact on your score are:
• Late or missed payments
• Defaults on debt
• County Court Judgments (CCJs)
These are not the only things to consider, other factors that can have a negative impact on your score include:
• A large amount of borrowed money or using a high proportion of your credit card limit(s).
These can be a warning sign for lenders that you may be struggling with your finances
• Too many searches
Each time you apply for credit the lender will review your credit report. This is known as a ‘search’ and will stay on your report for 12 months. If you accumulate a lot of searches in a short period of time, lenders may feel that you may be having financial difficulties.
• Frequent changes of address.
This can be viewed as a lack of stability and therefore make you appear more high risk.
• Mistakes on your report
These can be factual errors, such as the wrong address listed under one of your accounts, closed accounts still showing as open, or an unknown account is linked to your record either by mistake, or in extreme cases as a result of fraudulent activity. It’s important to check your report regularly, otherwise you may be turned down for finance through no fault of your own.
• Financial association or connection
The credit history of anyone you are financially associated with, such as a joint mortgage or bank account with a spouse, can affect your credit rating. If you are divorced or separated, cut all financial ties and make sure your former partner’s details are eliminated from any joint accounts.
Even if you turn your finances around, be aware that the items on your report stay there for 6 years and will be taken into consideration by lenders when deciding to grant credit.
Credit record myths
There are many other misunderstandings when it comes to credit reports and scores. Here are some of the most common examples:
• There’s a credit blacklist
There is no blacklist used by credit companies or Credit Reference Agencies. But every finance company or lender has its own criteria, so there are circumstances when it won’t agree a credit application.
• Where you live impacts your credit rating
Your address doesn’t influence your credit rating.Lenders ask for this information purely to help them find an individual’s credit file and confirm their identity.
• Unpaid student loans can damage your credit rating
Students loans aren’t visible on your credit report, so don’t impact your credit score. This is because they’re paid back through salary deductions. However, any credit cards or additional bank loans you take out as a student will show on your credit report.
Top tips to help your credit score
• Make sure you’re on the electoral register - Lenders use the electoral register to confirm an individual’s address.
• Try not to regularly keep a high balance on your credit card - Lenders may view this as excessive debt and that there’s a risk that you may be unable to repay.
• Make sure you pay your bills on time, every month – this shows you are financially disciplined and can manage your finances.
• Only apply for credit which is necessary – applying for more than three times in a year can lower your score.
• Cancel old credit card agreements and out of date credit cards, such as store cards you no longer use, as these will still show on your file.