It's the financial equivalent of your finger print. Completely unique to each and every person, from the age of 18 onwards it follows you through life. Whether or not you are approved for almost any type of financial product is dependent on your credit rating. That includes – to differing degrees – loans, mortgages, credit cards, car finance, mobile phone contracts and all but the most basic current accounts. It will also affect the rate of interest you have to pay.
How your credit rating is scored is varied and complex. Ratings agencies collect data from banks, other lenders, utility companies and credit based service providers every month on the status of your accounts. They then award you a score based on what they find which they feed back to companies when you apply for a new line of credit. Things that can affect your score include:
- The amount of money you owe and to whom
- How long you've lived in your house
- How often you apply for credit
- How much you pay back on debts each month
- Other people and addresses that you are associated with by jointly held financial products
- Unpaid bills
- Bankruptcy and County Court Judgements (CCJs)
- Even if you take out cash on your credit card!
Basically, the banks want to paint a bigger picture of you than ever before when they decide whether or not they think you're likely to default on a loan and whether you are likely to be a profitable customer. And the ratings agencies duly oblige. If the banks hear something they don’t like they’ll either turn you down flat or you’ll pay through the nose.
Whatever your situation though, it's rarely irrecoverable. The most recent things on your record have the biggest effect. And there might be peculiarities on your record which you can change right away. It could be that you used to have a bank account with someone who is a bad debtor and, although you no longer have any ties with them, you are still connected to them on your credit file. An erroneous CCJ could be present, as could bad debts which are over six years old. You could also be an unwitting victim of identity fraud. Most concerning of all, the information on your record could – and often is – plain wrong.
None of these things need be on your record – but you won't be able to get rid of them unless you know they're on there.
How do I access my report?
In the UK there are three main credit rating agencies – Experian, Equifax and Callcredit – scoring customers and passing that information onto requesting lenders. Their ratings are based on their own criteria of what they see as the most important attributing factors.
It's not just the banks that can access your information through these companies though – you are allowed to see what's on your own file too. Once a year you are entitled to a credit report from each agency for the cost of the administration - £2. After that you have to pay between £6 and £8 per month on a subscription basis to access it whenever you please. There are usually 30 day free trials on offer from companies such as CreditExpert (Experian). You can either request to have your credit file posted to you or you can access it online. The agencies also offer a service where they will email you if something in your report changes.
A relative newcomer on the credit report scene is checkmyfile. This company will obtain your credit report from either one or all three of the agencies on your behalf. What's more, they offer a one-off service as well as the on-going monthly account.
The inside track
There are a few old chestnuts that are often doled out when the subject of credit ratings comes around. But many of them hold weight.
Taking advantage of interest-free periods when switching balances between credit cards can save you money but doing so too regularly can have a negative effect on your credit rating.
Applying unsuccessfully for debt-based financial products lowers your credit rating, as does unsuccessful attempts to increase your spending limit on an existing credit card. These stay on your record for a year. The banks won't be able to see if you were successful or not with previous applications but if you've made too many applications in too short a space of time they might think you're desperate for credit.
If you've never had any credit products or you never pay interest on them you might be less likely to get a big one – like a mortgage – in the future. Lenders will be looking to check that not only is someone unlikely to be a bad debtor but also that they are likely to make money for the bank. Therefore, someone who pays off all of their debt during interest free periods or someone who has no credit history at all could well suffer from a tarnished reputation.
Old unused accounts like credit cards or mobile phones that are registered at previous addresses could come back to haunt you. As well as making you look inconsistent, any other poor records attributed to this house through subsequent inhabitants could sully your name.
Although bankruptcy and CCJs should be wiped from your record after six years, details of other accounts might stay around for six years after the account was closed. You can have these removed.
Top tips for a tiptop rating
If you want to ensure that your credit rating remains healthy follow these simple rules:
- Ensure you are never late with a repayment
- Register on the electoral roll
- Make sure your address is up to date - everywhere
- Don't make speculative loan applications
- Make sure the product you are applying for is definitely the right one for you
- Don't link yourself financially to bad debtors
- Check your rating regularly and go through your report with a fine tooth comb – one irregularity could stop you getting the money you need for the things you want to do in life.
What to do if something is wrong
Once you've checked your credit file and you find something is on there that shouldn't be, the first step is to write to the agency and request an amend. If they disagree, you may have to contact the organisation that has registered the information in question. If you still don't get anywhere you can add your own note to the report and hope that future prospective lenders take it into consideration when weighing up your application. This is known as a Notice of Correction. Your other option is to lodge an official complaint with the Information Commissioner – the state regulator of compliance with the Data Protection and freedom of Information Acts. Always keep records of any correspondence you have and take photocopies of any documents you send.
As we all know by now, the banks sometimes make mistakes. Don’t make one yourself by leaving your credit rating to chance.
To compare credit reporting services from the UK's leading providers click here.
Author: KYM Editor
knowyourmoney - company information
Comment on this article...