Credit Reports Explained
Every time a customer applies for a financial product such as a credit card, the credit company will consult that customer’s credit file. This file records all their financial activity in terms of credit applications and banking activity.
Just One?
There is no one single credit computer in the UK. Files are held by up to three credit agencies in the UK: Equifax, Experian and Call Credit. They gather data on customers from the Electoral Roll, court records (especially any County Court Judgements or CCJ’s) and details from financial institutions. Each credit company tends to refer to only one of the above agencies, not all three.
Is the Score Everything?
No. Credit companies also use a complicated risk assessment process of their own to assess the suitability of any new applicant for their product. The sort of customer that suits Company A may not suit Company B. The credit file is only part of the equation.
Can customers see their file?
They certainly can. Anyone can send a cheque for £2 to any of the agencies and receive a printout of their credit file. This will list details such as their home address, too.
What should individuals look for?
Mistakes. Any incorrect information, particularly concerning past addresses, or any incorrect credit applications, non-existent court records, and so on. If discovered, they should be questioned and removed as soon as possible.
What are Credit Reports?
In theory, credit scores are confidential information, but companies are offering to sell individuals the chance to buy their rating in one of two formats:
- a one-off report giving the credit score
- an on-going credit monitoring process
One-off Scores
What this report actually gives individuals is an estimate of what the credit score would be as a generalised figure. Since credit companies apply their own formula to the credit score and incorporate other factors into their final equation this can never be a definitive credit score. It will simply highlight any major problems, which the £2 report would show up anyway.
Ongoing Monitoring
The company will monitor the individual’s credit file and inform them of changes. Since the individual should be aware of what is happening to their financial position anyway, since they should be making any financial applications direct, this is of limited use.
Experian’s Credit Expert costs £49.99 a year, whilst Equifax’s Credit watch Gold costs either £6.50 a month or £59.99 a year.
Shared Accounts
Such a report might have use when the individual shares a bank account. When tow people share any sort of financial commitment, from mortgages to two names on a utility bill, their financial histories become linked. If the other party in a joint account runs up debts, it will affect the credit rating for both parties. The simple answer is: one can live with a person with bad credit, but should keep all accounts separate.
Reports for Free
Many companies offer a free three month trial of reports, or similar. Individuals can sign up (usually by giving a credit or debit card) and simply cancel this or any other direct debit payment for the reports once the free trial period is over. The companies hope that individuals will forget to cancel, but the canny card user always does! Also, any credit company are obliged to tell individuals why they have been refused credit, so reasons may emerge from this enquiry without having to see a credit report.
Manage Your File
The best tactic is for individuals to actively manage their files using some simple techniques.
- Asking for a credit quotation does not impact on a credit file, whereas making an application does.
- If circumstances change or needs explanation, a note can be added to a file explaining in more details so that credit companies have a fuller picture.
- Regular payments make a world of difference. Records of missed payments on file go back three years, but can be balanced by more recent records of regular payments made.
- Check the file for mistakes and inform the credit agency immediately if any are spotted. Credit agencies do want the file to be as accurate as possible, and will often sort out issues on the files themselves.
- Fill in application forms accurately, as this is a major source of information for the file. This is particularly important regarding past addresses.
- If credit is refused, ask the company why. They are obliged to give an explanation, and not just refer refused customers back to the credit agency.
Or sit and wait
A credit file only holds information for six years!
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