Credit Reports and Why They are Important
In this article, we'll look at:
- What is a credit report, and does everyone have one?
- Why should you check your credit report?
- What to do if someone is using your name?
- The difference between companies
- How can you improve your credit report?
- What’s included in a credit report?
- What if you have bad credit?
- Frequently Asked Questions
- Worried about your credit report?
Most of us forget about our credit report until we’re thinking of taking out credit. However it can be beneficial to check it regularly, here’s why!
What is a credit report, and does everyone have one?
A credit report or file is your financial history. It’s a record of all the credit you’ve ever taken out, including bills, rent and any other contract you may have taken out.
You might think you don’t have any credit history because you’ve never had a credit card or taken out a loan, but most people have some record of credit even if it’s just a mobile phone contract.
Have you ever wondered how a bank or lender decides whether to give you credit? Checking your credit file is one of the ways they decide. It gives them an insight into whether you are financially stable and if they can trust you to pay them back.
Most people wait until they’re planning to take out a loan or a mortgage before checking their credit rating. For many of us it might not seem that important. However, it’s useful to keep an eye on your credit report regularly.
Why should you check your credit report?
There are three reasons why you should check your credit report even if you’re not taking out credit:
- To spot and stop identity theft
- To notice any errors or mistakes
- To help improve your credit score
The first thing you’re looking for when you run your credit rating is to make sure it looks accurate. There could be mistakes or errors which are dragging your score down and giving lenders and banks an inaccurate view of who you are financially. A mistake could also be a sign of identity theft or fraud. Someone could be taking out credit in your name without you even realising, so it’s always best to check every now and then.
What to do if someone is using your name?
If you think you’re a victim of identity theft, you need to report it immediately. Make sure you take as many details down as possible to give the police the best chance of catching the culprit.
Signing up to a credit report checking company means they will alert you if there are any strange or suspicious changes in your credit.
It’s also useful to check your credit report because it can show you areas where you can improve it. If you can see where the problem is, you can see how to fix it.
For example, if you’re late paying your bills every month because you want to coincide with payday, it could be negatively affecting your credit score. If you speak to your providers, you might be able to change the date of pay for bills like these, often by just paying off the difference for the first month.
The difference between companies
In the UK, there are three main Credit Reference Agencies or CRAs:
Sometimes these companies will fall under a different name e.g. Clearscore (Equifax), Credit Expert (Experian) and Noddle (Call Credit).
Each CRA use a different rating or scoring system so when you’re checking your credit file, make sure you know which scale you’re looking at.
How can you improve your credit report?
Make sure you’re registered to vote
Consider taking out credit that is affordable and manageable for you, but do not overextend yourself
Make repayments on time, and in full
What’s included in a credit report?
- Credit Cards
- Mobile phone contracts
- Store cards
- Home/Online shopping accounts
- Catalogue accounts
- Debt collectors
- Vehicle finance
- Utility bills: Water, Electricity and Gas
- Rental payments
What if you have bad credit?
If you have a poor credit rating, lenders will be less likely to consider you. This can be particularly tricky if you’re in debt and are looking for a way to borrow enough to pay those back and start repaying one company instead of however many you currently owe.
One option for bad credit is a Debt Management Plan (DMP). This is an informal agreement between you and your creditors that you will pay them back what you can afford.
You’ll work with a debt management company to create a budget and a plan to propose to your lenders. The idea is that you’ll take several monthly payments and condense them into one affordable monthly payment. This should make paying off your debts more manageable and could even leave you with more spending money every month.
Frequently Asked Questions
A credit agreement is removed from the credit report either six years after it has been paid off or six years after the date a default is reported on the credit report.
You can use a credit repair company to remove incorrect entries, but this can cost you money. Alternatively, we would suggest checking that there are no incorrect entries on your credit report and if there are, have these removed by contacting the company. Other than this, rebuilding a credit report takes time and responsible use of credit.
It is recommended that you get a copy of your credit report and check the accuracy of all the entries on it. If you are not on the Electoral Register you should register. You may want to seek the advice of a qualified Mortgage Advisor or Independent Financial Advisor, who are qualified to help in these situations.
Any financial associates that you have can be removed if you no longer have an active joint account or mortgage with the financial associate. The account must be paid in full and closed. To remove the financial associate, contact the CRA concerned, and they will be able to assist you in removing it.
Worried about your credit report?
If you’re worried about your credit report because of mounting debts, a DMP could be a good debt solution. We consider everyone no matter their credit rating.
We’re here to help you pay back what you can and start on a new financial journey.Apply Now