When you apply for any sort of credit (or apply for a product or service that you pay off over the duration of a contract) you will more than likely be credit scored by the company you're applying to. This involves them accessing your credit file and compiling a picture of your financial history to decide whether or not you're eligible for the product.
What is a credit rating and what's it used for?
A credit rating is used by a lender to help them make a decision about whether to offer you credit and on what terms. This could be any type of company that you might enter into a credit arrangement with, be that a bank, mobile phone operator, utility company or even a prospective landlord.
Lenders obtain a copy of your credit file from a credit reference agency (CRA) which acts as a guide to your past borrowing. They then apply their own criteria to the information on your file to decide whether or not to lend to you.
So I don't have one credit score that all lenders use?
Absolutely not. The information on your credit file provides lenders with a set of information that they use (along with the details on your application form and any information they may already hold about you) to make a decision about whether or not you meet their criteria for borrowing.
What information is on my credit file?
Your credit file contains data taken from a number of different sources. Your address details will come from the electoral register, whilst information about any relevant county court judgments (CCJs) or bankruptcies comes from court data.
There will also be a list of searches made on your file. This is where a lender has requested information about you when you've applied for credit.
You may see "hard" and "soft" searches. Hard searches go on your file and are shared with potential lenders. Soft searches are made by things like online eligibility checkers or lenders carrying out identity checks, but don't create a footprint on your record and are only visible to you.
Your borrowing history will list all credit agreements you've entered into (both active and settled) with your payment history going back up to six years. It will detail whether payments were made on time, late, if you defaulted or whether an arrangement to repay was agreed.
You'll also see any financial associations you have with other people, like your partner if you hold a joint account as well as any previous addresses or addresses with credit linked to them in your name.
Can I see my credit file?
Yes. There are three main credit reference agencies operating in the UK - Experian, Equifax and Call Credit - and you have a right to see the information they hold about you. Each of them can provide you with a "statutory report" for which they charge a small admin fee (currently £2).
Lenders can use any one - or a combination - of the agencies, so if you want to check your file, it might be best to go through the same exercise for each of the three. At TSB we use information from Experian and Call Credit, but if you want to see who is used by other providers, MoneySavingExpert have compiled a list of lenders and the credit reference agencies they use.
For information on how to obtain your statutory credit reports, use these links:
- Experian - http://www.experian.co.uk/consumer/statutory-report.html
- Equifax - https://www.equifax.co.uk/Products/credit/statutory-report.html
- Call Credit - https://www.callcreditstatreport.co.uk/
There are other products and services available online that allow you to check and analyse your credit file. Some of these will give you a score, but it's important to understand that this is their own measure of the health of your credit history and a lender may apply different criteria.
Each of the agencies has their own paid-for subscription service for people who want to keep a close eye on their credit file: CreditExpert (Experian), Equifax Credit Report & Score and Credit Compass (Call Credit). But some free alternatives have appeared lately which offer something similar (supported by advertising). Noddle is one such service (operated by Call Credit) whilst Clear Score is an independent company that uses data from Equifax.
What if there are errors on my report?
The credit reference agencies hold data about you, but the responsibility for its accuracy actually rests with those who submit it to them. So if you find that your credit card provider has inaccurately recorded details about your account on your credit file, you could take it up with them in the first instance.
You can dispute details with the CRAs directly and at the very least you should be able to add a "notice of correction" to your file explaining what happened.
If you're unhappy with how your credit file is being managed by a lender or reference agency, you could contact the Information Commissioner's Office with your concerns.
What can I do to improve my credit score?
Any "score" or grading you might have seen for yourself is just someone's view on the health of your credit file and moving that up or down doesn't necessarily mean that you will suddenly be eligible for any given product. But if you want to improve the general standing of your credit file, you could try the following:
- Make sure you're on the electoral register: it's a key way of verifying your identity. If you're not on the register, you can submit your details on GOV.UK .
- Use credit and always repay on time: using the credit you have and paying back on time shows that you are a trustworthy borrower. If you have a credit card, use it regularly. Set up direct debits or standing orders to ensure you don't miss payment due dates. If you have unused cards and you're sure you're not going to need them, consider cancelling them.
- Plan your credit applications: when applying for credit, a record of a credit search will appear on your file. Too many could be seen as harmful, so research products first and use eligibility checkers that run "soft" searches before making a full application. The same goes for insurance - if you pay monthly and enter a credit agreement, a hard search will be recorded.
- Correct any mistakes on your file: remove any associations with people you no longer hold accounts with, like former partners. Check for any inaccurate address links and dispute any other errors with lenders or the relevant reference agency.
- Consider a "credit builder" card: if you're finding accessing credit difficult, there are a number of credit cards on the market that offer low credit limits to help people build a positive credit record. These usually come with high interest rates though, so you will probably want to pay the balance in full every month.
- Monitor your credit file: you should check your file at least annually. Lenders will be updating your information on a monthly basis, so stay on top of it. Also, keep an eye out for searches and accounts you don't recognise.
- Be patient: if you're actively managing your credit profile using an online service, don't expect your score to move as soon as you make changes. It may take some months before you start to see a shift in your score.
I've never defaulted on anything but I'm still being turned down for things. Why?
Make sure you check your credit file with all three CRAs. Mistakes can occur, sometimes with very unfortunate consequences.
Your credit file isn't the only reason why an application might be turned down. Lenders may also check details on your application form against fraud databases which could lead to a request for credit being declined.
Try not to take any rejection personally - criteria can differ between lenders and just because you don't tick the box for one, it doesn't necessarily mean that you're a bad credit risk.