Credit advice to help you get the best loans for you

What is a Credit Report?

Credit reference agencies (CRAs) collect and maintain credit account performance data information. The credit reference agencies are for-profit corporations that sell your personal information for money.

The credit reference agencies receive your information through the lenders who grant you credit. When you apply for credit you agree with the lending institution that they can share your information with the credit reference agencies. If you miss a due date or make a payment late, this is quickly reported to at least one or more of the three UK credit reference agencies (Experian, Equifax and Call Credit) and is added to your credit report.

Credit reports are not just a record of how you are currently managing your credit accounts. Credit reports are histories of everything you are doing with your credit sources now, and everything you have done in the past. Credit granting bodies who review your credit circumstance are interested in any negative and positive credit history. If you have shown any tendency to pay late, or to disregard your financial commitments in the past, then most creditors' underwriting policies will reject your application.

Whenever you apply for any type of credit or financing, a credit report is pulled from at least one of the three major credit bureaus.

What Information Appears on the Credit Report?

CRA's have access to information from a variety of datasets such as the electoral roll, county court judgements, bankruptcies to name a few. They also have the credit performance data from lenders who provide department store cards, auto loans, mortgages, and credit cards. If there is any history of late payment, or if the credit was included in bankruptcy, IVA, the listing will be considered negative by all credit grantors.

Inquiries: Every time a potential lender looks at your credit report, a credit inquiry appears on at least one of your credit reports. If the number of credit granting inquiries is very few over the last two years, then there may be no negative effect on your credit report. However, if there are many recent inquiries showing on your credit report, lenders may become nervous and deny you credit. This could be seen as a sign of credit hungriness

Can I See My Credit Report?

Most credit grantors are not allowed to show you your own credit report. But you can purchase your credit report from the CRA for a fee.

How Much Bad Credit Does it Take for Me to be Denied Credit?

As you may have already experienced, even one small late payment listing may result in being declined for credit. It is a myth that a large amount of positive credit can outweigh some negative credit. Any negative credit whatsoever can become a substantial credit obstacle. Lenders look to match the rate they give to your credit worthiness.

Who Looks at My Credit Report?

Your credit report is used more and more often as a yardstick to measure your character. Prospective lenders will always review at least one of your credit reports before granting you credit. Some employers now check credit before they consider you for a position. If you rent, you may have already been through a credit check to determine your worthiness as a tenant. Even online gambling companies, such as spread betting firms, will sometimes view your credit report before accepting you as a customer.

Inquiries

When you are shopping around for a loan or more credit, you should know that if creditors check your credit file, it places a credit granting inquiry search on your credit report called a credit granting footprint. A number of footprints over a relatively short period can add up, which is interpreted as a negative by creditors. For this reason, too many credit granting footprints can actually make getting credit more difficult. Moreover, if you didn't authorise someone to look at your credit report and they did, they may have broken the law.

Identity Theft and Credit Fraud

Identity fraud occurs when an unauthorised individual assumes your identity, without your knowledge, in an attempt to make a gain (usually financial) for his/herself. The perpetrator usually takes your credit card or account number to make unauthorised charges to your account or set up new accounts in your name. Though most consumers are protected financially from this abuse, other creditors may take note of all this activity and decide to raise your interest rates or refuse to grant you a loan. Ordering your credit report will help you catch new activity on accounts that you haven't been using, or may have closed.

Applying for a Loan? Start by Ordering Your Credit Report

If you are considering applying for a loan, personal and/or secured, ordering a copy of your credit report is usually the best way to start. More often than not, it's the first thing a potential lender will be looking at, and even if you pay your bills on time, you will want to ensure that all the information in your credit file is up-to-date and accurate.

Depending on whether you are applying for a car loan, a mortgage loan, or a loan for business or personal use, different lenders may apply different underwriting and scorecards in rating your suitability for repaying credit. For this reason, reading your credit report and understanding how your credit data might be interpreted may give you a chance to improve your credit worthiness from the point of view of a lender.

Defaults and Delinquencies 30-Day and 60-Day Late Payments

Even if your credit report contains 30-day late (one month down) payment entries that are accurate, many lenders will overlook the occasional late payment if you explain the situation and your credit is otherwise good. Avoid any payment being over 60-days (two months plus) late as this may be classed as a default for lenders. Even if they do grant you the loan, it will come at a higher rate of interest and often with less favourable terms.

Avoid Unnecessary Credit Granting Inquiries

Every time a prospective lender looks at your credit report, a credit granting footprint is added to your file, and most inquiries stay on your credit report for up to two years. Inquiries you make yourself, inquiries made during screening for a pre-approved offer of credit, or an inquiry that is part of a background check for employment or tenant vetting purposes are not reported to potential credit grantors.

It is best to avoid over-applying for credit and running up excessive inquiries, for the simple reason that lenders may think you are trying to get credit due to financial difficulty, or taking on more debt than you can repay.

Your credit report affects your financial future and is the key to credit management. Incorporating a review of your credit report into your financial planning is also one of the best ways to make sure you meet your aims--especially when those goals involve major purchases such as a mortgage, and you are shopping for a loan with the most favourable terms possible.

Negative Credit Items

Having trouble getting credit for a new car? Turned down for a credit card or mortgage? Here are some of the most common negative credit items that may appear on your consumer credit report to keep you from earning the credit you deserve.

County Court Judgement (CCJs)

Many creditors such as utility suppliers and financial institutions will apply to the county court to get a judgement against you. This will have a major impact on your credit rating, especially if it is a recent judgement or you have multiple CCJs over a short period.

Bankruptcies:

An individual can be made bankrupt in one of three ways

Voluntarily – by the debtor themselves
Involuntarily – by a creditor who is owed £750 or more
The supervisor or anyone bound by an IVA. Anyone who is a bankrupt cannot obtain credit for over £250 so any lender or credit grantor will instantly refuse an application from a bankrupt.

Late Or Missed Payments:

If you often miss payments or are late in making payments this will have a detrimental effect on your credit rating. Late payments are classed as delinquencies, if you miss three or more consecutive payments then the lenders define these as defaults. A number of defaults or delinquencies over a short period of time will have a large detrimental effect on your ability to obtain credit. The lender will often deem that you are getting into financial trouble and you will find it very difficult, if not impossible to get a good rate.

Disputing Negative Items on your Credit Report

It is possible to dispute the negative credit items appearing on your credit report. Removing damaged credit history can significantly raise your credit rating, making it easier for you to secure financing and credit cards in the future.

How Can I Dispute Negative Credit Items?

Each of the three major credit reporting agencies have procedures for disputing negative items on your personal credit report these are known as a Notices of Correction or a Notice of Dispute. You can file your dispute at the credit reference agency's website, by phone or post. You will be asked to provide the name of the creditor, their address, account number, and other identifying information for the listing in dispute. You will also have to explain why you feel this data is incorrect and should be removed or amended.

How Your Credit Rating Affects You

Some people never bother to regularly monitor their credit report; some never check theirs at all. It's easy to underestimate the value of a credit report, unless you belong in the high-income club and can afford to buy everything with cash; your credit rating often dictates the quality of life you live.

Bargaining Power, Borrowing:

The higher your credit rating the better chance you have at getting the best rate. Most lenders operate a rate for risk policy, the higher the risk the higher the rate. In the UK if you apply to a number of lenders to find out who will give you the best rate, this may also affect your credit rating. So even if you have a good rating multiple applications over a short period of time will have an adverse affect.

If you have a good credit rating, you are in a position of power; credit card providers are willing to outbid each other in an effort to get your business. This is expressed via attractive niceties such as 0% balance transfers, 0% interest on purchases, air miles, reward points and many others.

If you have bad credit none of these will be available to you, most lenders will simply stay away from you. Those who do choose to lend to you will typically charge double the interest a good credit customer pays.

Special Deals And Promotions:

Lately, shops and supermarkets are also getting in on the act. In an attempt to sell you goods, retailers are willing to give it to you on an "interest free period" often with nothing to pay upfront. You can only get this deal if you have a good credit rating; those with bad credit will have to pay the full price.

When it comes to buying cars, although some lenders will accept people with bad credit, it's on higher interest loans, in the end the person with bad credit pays more for the same car.