Money Insider: So do you know what's on your credit record?
Friday 15 March 2013
While most people have heard of the term "credit record", research by Aqua credit cards shows that less than half have ever checked their own file.
There are lots of reasons why. One is that many don't know where to get the information from and assume it's an expensive and complicated process. But the main reason is that people don't realise how much their credit history can affect their everyday life.
An impaired credit rating can prevent you getting a mobile phone contract, the best energy tariff, or could mean that borrowing with a credit card, loan or mortgage will be charged at a higher interest rate or result in your application being turned down.
There are three main credit reference agencies in the UK: Experian, Callcredit and Equifax. To get a copy of your own report from any of these companies costs just £2. You can choose to see the information online or arrange for a copy to be posted to you.
If you've never looked at your record, I'd recommend paying the £2 just so you can check exactly what information is registered against your name. For all you know details may be incomplete or incorrect, making it more difficult and more expensive to get a loan than it should. If you're interested in keeping a closer eye on your credit record, including monitoring changes in your credit score and being sent alerts when your record changes, you can buy a premium subscription from the credit reference agencies. However it will cost you almost a tenner per month for the extra service, so I'll leave it to you to decide whether you think that's value for money.
Your credit report will include your payment history. It has details of any late or missed payments on your existing loans and credit cards as well as previous cards and loans you've had in the last six years.
Your record will also include details of any bankruptcies and county court judgments as well as the amount you currently owe on your credit agreements, together with details of searches and new applications made.
Neil Munroe, director at Equifax, says: "Each lender will make its own assessment of a customer's borrowing application and will look at your credit record as part of that process, but it is the lender that decides whether an application is sanctioned, not the credit reference agency."
There are lots of myths surrounding credit reports which can be misleading. For instance, third party information, including members of your family who live, or have lived, with you should not appear on your credit file as long as you don't share any joint financial commitments. If you have any financial associations with former partners, such as joint accounts, make sure these are closed down.
By the same token, other people who have lived at your address previously should not affect your credit score. Also absent from your record are details of savings, student loans, Child Support Agency orders or criminal records.
How can you improve your credit rating? The key is to ensure you are registered on the electoral roll – otherwise you won't appear as being listed at your address if a lender makes a credit search. But you should also close credit card accounts that you no longer use. Even though your balance may be zero, prospective lenders will take into account any existing credit limits you have when assessing applications for new loans.
If you apply for credit and are turned down, don't make further applications with other lenders in the hope that one may say yes. Multiple applications and searches on your file in a short space of time will have a negative impact on your credit rating.
Having no record of managing credit can count against you, so it's worth having a credit card and using it a few times each year. As long as you repay the balance in full and on time it won't cost you a penny, but it will show you are capable of managing credit.
If you've had credit issues in the past, mainstream lenders are unlikely to give you credit. However there are specialist lenders, such as Aqua, Luma and Vanquis, which offer cards at a much higher interest rate to those with an imperfect financial record to help them to rebuild their score.
If you've never taken a look at your own credit file I'd recommend getting hold of a copy using the low-cost option as a start – it could turn out to be £2 well spent.
Andrew Hagger is an independent personal finance analyst from moneycomms.co.uk
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