It’s a credit to you
How clued up are you about your credit report? Vicky Shaw reveals the answer, for many of us, is ‘not very’
Credit reports underpin much of your financial life, painting a picture of your past and current borrowing habits, and affecting how willing firms are to offer you credit.
Yet new research by The Money Advice Service (MAS), a Government-backed body, has found one in five of us admits to knowing nothing about them, harbouring some “worrying” misconceptions about what’s included in one. The misconceptions include 22% of 2000 people surveyed having no understanding of what a credit report is for, and one in six (15%) people thinking it’s used to check whether someone has a criminal record.
In fact, a credit report is used by financial firms to help them decide whether or not to lend you money in the first place, then how much to let you borrow and sometimes how much interest to charge. Basically, they can be the difference between you being offered a mortgage or not, or determine how expensive the debt on your shiny new credit card is going to be.
The term “credit” provider doesn’t only apply to banks, building societies and credit card firms either, they can apply to businesses like mail order and mobile phone firms too.
High levels of existing debt are likely to make all these companies more nervous about lending to you – and be warned, missed payments from financial arrangements like personal loans and gas and electricity bills will stay on your file for six years. As a result, nearly one in six (17%) people in the MAS survey said their credit rating has caused them financial problems in the past, such as having difficulty getting a phone contract or struggling to rent a house.
So what can you do about it?
One obvious way to improve your credit rating is to pay your bills on time, perhaps by setting up a direct debit. You could additionally boost your credit rating by getting on the electoral register and by thinking about whether you use all of your credit cards. For instance, having card accounts open that you never use can affect what lenders think, as does being tied in any joint form of credit, such as a bank account or a loan, with someone with a poor financial history.
Even if you’ve been well-behaved with your wallet, it’s still worth making sure there are no mistakes on your report and that no one has used your details to commit fraud, as you can challenge anything that’s wrong. If there’s accurate information on your file that doesn’t reflect your current circumstances, such as if you’ve had debt problems but you’re now back on track, you could think about asking for a “notice of correction” on your report. This is a short statement explaining what happened. Equally, remember a good credit score doesn’t guarantee that a firm will say “yes”, as different firms have different criteria.
:: INFORMATION: The major credit reference firms include Experian, Equifax and Callcredit.
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