Consumer rights expert Martyn James has explained how credit reference files work and what to check before borrowing money in the coming months.
With the sales season approaching and many people planning for Christmas, some may be considering taking out a loan or credit, consolidating debts, or using an interest-free credit card deal to avoid paying interest. All of these options involve a credit check.
What are credit reference agencies?
There are three main credit reference agencies in the UK: Experian, Equifax and TransUnion. Each uses different ways to score you, and there is no single universal credit score. Different lenders and businesses use different agencies, so it makes sense to get your credit files from each one to know what they hold on record.
You can request your statutory credit report for free through each of the websites. The agencies also offer subscription services that provide more information about your creditworthiness, explanations of how they have graded your credit risk, and advice on improving your rating. However, you do not need to pay for these services, and if you sign up for a major purchase such as a house, remember to cancel the subscription when you are done.
What is in your credit reference file?
Your credit reference file covers all the data that credit reference agencies hold on you, including information on loans, credit cards and other financial borrowing or arrangements, as well as details of outstanding debts. It also records the number of credit applications you make over a set period, usually 12 months on a rolling basis. Applying for credit too many times in a 12-month period can affect your score, as it may suggest financial struggles.
The file also contains personal information, so it is vital that this is up to date. Being on the electoral roll tells businesses that you are who you say you are and that you live at the address on file. The file also includes serious matters on the public record, such as bankruptcies, debt management plans and other court judgements.
How to get your credit score
By law, you are entitled to your statutory credit score for free, but this is not always easy to find on the credit reference agency websites. Look for your statutory report on the website; you may have to make a formal request, but it is free unless you want it posted out to you.
When you get your credit report, check that your personal details are correct and look at the records showing your existing or settled loans, credit or borrowing. These should show if you have defaulted or missed any payments. If you spot any errors, you can appeal these through the lender or mark disputes on the credit file itself through the credit reference agency.
Is there a credit blacklist?
There is no credit blacklist that means people on it will never get credit. Lenders make decisions based on the information on your credit report, your application form details and any account information they already have. Even if things have gone wrong in the past, you could still be accepted, but you are likely to be offered lower credit limits and higher interest rates.
The biggest blockers to credit are defaults, County Court Judgments, bankruptcy and Individual Voluntary Arrangements (IVAs), but these will vanish from your file eventually.
Credit checks and your partner
Credit reports are individual and only contain your personal information. Living with someone does not mean your credit reports will be linked unless you have applied for joint credit together. If you have previously taken out credit with someone but do not share any joint accounts now, you can ask for a financial disassociation with all the credit reference agencies. However, joint credit accounts can leave you liable for debts as an individual if you fall out with your partner, so make sure you understand the repercussions before signing up.
The previous occupants of your address do not have any impact on your finances or your credit report. If utilities companies incorrectly link bills to you from former tenants, you can make a formal complaint. You can also have incorrect debts placed by tracing agents removed from your credit file for free.
Checking your credit report does not affect your score. It will show on your report as a 'soft' search each time you check, but this is only seen by you. 'Hard' checks, created by applying for credit, stay on your file for up to 12 months and can impact your score if you collect too many.
There is no universal credit score. Each of the three main credit reference agencies will give you a different score on a different scale, and the higher this is with each agency the better. Martyn James is a leading consumer rights campaigner, TV and radio broadcaster and journalist.
