Credit Ratings and Reports
There is so much mis-information about on credit reports and credit scores spread across the internet. This guide has been prepared by a Senior Client Legal Assistant at Harrington Brooks, so you can be assured of its accuracy.
Credit reference agencies collate information from a number of sources, including those in the public domain such as the electoral roll, as well as information provided by lenders.
This information is known as a credit reference file or credit report.
Lenders must make a decision as to what extent lending you money is a safe bet. To be able to do this they can use information they already hold (if you have previously had dealings with that lender) and the information you disclose on an application for credit. They may also seek information about your present and past financial circumstances that is held by credit reference agencies. This will allow them to build up a more comprehensive picture of your suitability to receive credit.
How do I obtain a copy of my credit report?
For a small fee, you can get a copy of your credit report by visiting the websites of any of the above mentioned credit reference agencies.
However, we recommend Noddle.co.uk, which are owned by Callcredit. They offer a free service which shows your credit report instantly.
You'll need to enter your debit/credit card details, but this is just a security measure. No payment is taken.
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How does credit scoring work?
Lenders have their own internal scoring system to enable them to decide whether to provide credit. Details provided on a current/ past application, as well as historic information if you have previously used their services are converted into a points system. If you score high enough then you are likely to be offered credit.
The lender may combine this information with details held on a credit file before deciding what product/ service to offer and at what cost.
As you are unable to judge what criteria are used on a lender’s internal scoring system, you may wish to gauge how good or poor your credit file looks to a lender. In addition to obtaining your credit file, you can pay for the credit reference agency to score it for you. The higher the score is, the more likely it is that you will appeal to a potential lender who will be checking the credit file.
What information is held on a credit reference file?
Any account that you hold with another person or any joint application for credit will create a link on your credit file to that of the other party. This means that potential lenders can see who you are associated to financially, and this can have an impact on a decision to provide credit.
There are a number of different types of information held on credit reference files, collated from many sources and used in different ways. These include:
Alias or Association Information
If you have been known by any names other than your current one, for example if you have changed name by deed poll or have got married/divorced, an entry will be made under the ‘alias’ section of the file. This ensures that your financial history is linked regardless of name change.
Details of current and previous addresses that you have been a resident of when applying for credit are recorded in this section. You may have moved home since opening an account and therefore it is important for the creditor to maintain a record of known addresses.
Please note that debt is specific to an individual and not the address that they are living at, or were a residing in previously.
Electoral Roll (Voting)
Details of where you have lived and how long for are listed on file. It will also state whether you are on the electoral roll with your council for voting purposes. It is advisable to register if you are not already on the electoral roll at your current address.
Live accounts. This shows any active accounts, and whether payments are being maintained. There could be a balance showing against the entry, from the date the lender last updated the information. Upon closure of the account, the entry can remain in file for six years.
Accounts that have been settled or satisfied may be listed for six years after the date of closure.
Default notices, if registered, are marked against the corresponding account and may be listed for six years from the date issued.
Details of any County Court Judgments, High Court Judgments, Decrees or Administration Orders may appear against the relevant account entry for six years from the date they were granted.
If the credit reference file is used by a potential lender, individual or institution there is an entry made under search information.
When applying for credit, you will usually be asked to acknowledge that a search will be made so you are aware that a record of the search will be created. If a number of searches are made this may have a detrimental effect on your credit score as it can appear as though you are desperate to obtain credit and therefore pose a higher risk to lenders. Other organisations may need to refer to your file for an identity or money laundering check but these searches will only be available to you and not shared.
How long this information is held depends on the credit reference agency.
Council of Mortgage Lenders’ Repossession Register
The Council of Mortgage Lenders keeps a register of anyone who has had to give up their interest in a property, or been subject to repossession. This is a useful guide to any future mortgage lenders to assess risk. This may stay on your credit file for six years but can only be viewed by members of the Council of Mortgage Lenders.
GAIN (Gone Away Information Network)
If a debtor or borrower fails to maintain payments and subsequently moves home without informing the creditor, they may find that there is an entry made under GAIN. This may last for six years but is only accessible by participants of GAIN.
CIFAS (The UK’s Fraud Prevention Service)
An entry may be made under CIFAS if a lender believes there may be a fraud or an attempted fraud to warn other lenders and protect customers. Only members of CIFAS see this information.
Am I blacklisted From Obtaining Credit?
No. There is no such thing as a credit or financial blacklist. Potential creditors will use the information in your credit reference file, as well as information you supply to them directly, in order to assess whether they are willing to provide credit to you.
How do I improve my credit rating?
Each credit reference agency will offer advice about how to do this, and will usually include maintaining contractual payments to creditors, ensuring that you are on the electoral register and avoiding repeatedly applying for credit within short periods of time.
It is important to point out that even if you have a ‘poor’ credit rating you may still be able to obtain credit. A lender may still wish to offer you a product or service but to offset the risk of none-payment you may have to pay more in interest or charges. Conversely a ‘good’ credit rating does not automatically mean you will be able to obtain credit from a lender. Some creditors may not wish to offer services if they think that they cannot make enough profit from your custom.
See our guide - 10 top tips for managing your Credit Score
Does a Debt Management Plan affect credit rating?
Being on a Debt Management Plan will not itself affect a credit report as no information is supplied to a credit reference agency from your DMP provider.
It is the information that creditors submit to a credit reference agency that have an impact e.g. record of missed payments to ongoing contracts, and default notices or CCJ’s issued within the past six years.
Will a poor credit score mean I can’t get a mortgage?
Not necessarily. You may still be able to be accepted for a mortgage but you may well be restricted to using an adverse credit lender, or you may have to pay a higher interest rate than someone with a good credit history. If you are unsure of whether you can be accepted then consulting a good mortgage broker or financial advisor may help, as they will be used to dealing with many different lenders and can tailor your application.
How does an IVA affect credit rating?
Details of an Individual Voluntary Arrangement are held on The Individual Insolvency Register and this is used by credit reference agencies on your credit file. This may stay on your credit file for six years, or possibly longer depending on the term of your IVA. Although it will be clear that you have experienced financial difficulty, a completed IVA also shows commitment to debt repayment within your means.
How does bankruptcy affect credit rating?
Details of bankrupts are held on The Individual Insolvency Register, and this is used by credit reference agencies on your credit file. This may stay on your credit file for six years (from the date of Bankruptcy), or possibly longer depending on any Restrictions Order. This will inhibit your ability to obtain credit.
The Information Commissioner’s Office
If you have any problem with obtaining a copy of your credit report, or experience difficulty with correcting incorrect information on your credit file (and you have allowed reasonable time for the lender or credit reference agency to act) then you can seek assistance from the Information Commissioner’s Office.
The Information Commissioner enforces the Data Protection Act 1998 and Freedom of Information Act 2000. The Data Protection Act 1998 gives you the right to ask for a copy of your credit reference file and to correct any information that is wrong. If you need to contact the Information Commissioner you can write to them at ico.gov.uk