Understanding your credit report is very important if you are considering applying for a loan or a credit card. Most lenders will assess your credit report as part of their application process.
In this guide, we look at everything you need to know about your credit report and how you can check your credit score.
What is a credit report?
A credit report is a record of your debt repayment history. It’s basically your financial resume and a history of your financial life, including accounts you hold, money you’ve borrowed, and information about your identity. It is there so that lenders can confirm that you are who you say you are and that you are a reliable borrower.
It includes your personal data and information about your loans and debts. It also includes a record of any financial problems you have had in the past.
If you’ve had problems with high debt, lenders may be less likely to accept you for a new loan. Or you may be offered a loan with higher interest rates than someone with a stellar credit record.
Is a credit report different from a credit score?
In a word, yes. Your credit report is different from your credit score. In fact, you don’t have a universal credit score.
This is because each lender uses your credit report differently and may have a different credit scoring system. All credit reporting agencies (CRA) provide you with a “credit score”. But really, that’s just an indication of what your credit score might be with a lender based on the information they have.
If you have a “good” credit score, there is no guarantee that your application will be accepted and that the overall rate will be offered to you. It just depends on the lender and whether or not they are happy to lend to you. That said, the better your credit rating, the better your chances of being able to borrow money.
What is included in a credit report?
Let’s take a detailed look at what exactly is included in your credit report. Here’s what it usually contains:
- A list of your credit accounts – bank and credit cards, loans and debts from the utility company
- Details of anyone financially linked to you
- Information such as CCJs, foreclosures, bankruptcies and IVAs
- Your current account provider and any overdraft details
- Whether or not you are registered on the electoral lists
- Your name and date of birth
- Your current and previous addresses
- Whether or not you have committed fraud, or if someone has impersonated you and committed fraud
- Your credit utilization ratio – the amount you have borrowed compared to the amount you could borrow
You can find all of this information broken down in your report, so it’s worth double-checking that the case details are correct.
All details about fraudulent actions will be kept in the Cifas section. Cifas is a national fraud prevention organization. It can put markers on your credit report if you’ve been the victim of identity theft.
How do lenders use your credit report?
Lenders use your credit report to determine if you are a reliable borrower. If you apply for a loan or credit card, they use your credit report as part of their application process. They use their own criteria to establish their credit score based on the information in your credit report.
Lenders specifically focus on your payment history and credit utilization rate when making a loan decision.
A low credit utilization rate indicates that you are not using your available credit too much. This suggests to the lender that you are managing your credit well and not overspending, which can lead to a higher credit score.
Lenders use their assessment of your credit score to help them make a loan decision. If you have a higher credit score, they are more likely to lend to you and offer a lower interest rate.
How can you check your credit report?
It is possible to check your score for free since all credit rating agencies are required to provide you with a copy of your credit file without charging you. Alternatively, each of the agencies has some kind of full credit monitoring service that you will usually pay for after an initial trial period.
There are three rating agencies in the UK: Equifax, Experian and TransUnion.
Your credit reports may be slightly different from one CRA to another. Indeed, not all lenders share their data with the three rating agencies. It’s worth checking your credit report with each, as they may differ depending on the lender who shared the information.
What should you look for in your credit report?
As we have seen, there is no universal credit score. Understanding it can therefore be quite tricky. The scores you get from each of the ARCs will all be different.
So here is a basic overview of how each ARC presents the scores:
- Experian – The scores are divided into five categories: very poor (0-560), poor (561-720), average (721-880), good (881-960) and excellent (961-999).
- Equifax – The marks are out of 1000. Good goes from 531 to 670, very good goes from 671 to 810 and excellent goes from 811 to 1000.
- Trans Union – TransUnion has a slightly different system. Scores are out of 710 but come with your credit rating. So your “overall creditworthiness” will also be scored as a number from one to five.
If you’re unhappy with your credit score, there are ways to improve it.
Using credit wisely can help you build or rebuild your credit score. Credit cards can help get you on the right track. Take a look at our list of top rated credit cards for bad credit in the UK to see which one is right for you.
How does my credit report affect my credit score?
Any data in your credit file can affect your credit score. The two most important factors are your payment history and credit usage.
A good mix of different types of credit can have a positive effect on your credit score. That’s because lenders like to see a healthy mix of different accounts, like credit cards, a car loan, and a mortgage.
Reading a copy of your credit report can help you understand the information affecting your credit score. Then you can come up with an action plan to maximize your credit score.