Debt Help - Check Your Credit File

The idea of ‘Credit Files’ are somewhat of a misnomer in the UK. Lenders basically have a ‘perfect customer’ profile. This varies from lender to lender, but is always geared around which type of profile will make them the most profit.

This is a brief guide to understanding how credit scoring works and how to improve your chances of getting credit – if you need it and can afford it.

If you apply for any credit, be that a mobile phone, mortgage, loan, etc, lenders will ‘score’ you, based on your predicted behaviour. How you are judged varies from lender to lender and is also dependant on the type of product your are applying for. Therefore, what is a ‘good’ application for one company may possibly be not so good for another.

The thing to remember is that you do not have the equivalent of a medical file sat around somewhere in ‘The Credit File Department’ – Every lender has their own scoring system, although as the information they use will be similar, it sometimes does feel as though there is.

The thing to remember is that lenders are only interested in profit, not risk. Obviously, higher risk applicants are less likely to repay the credit, but overall, profit is king.

A good example is a credit card company who may decline a ‘good’ application because your track record shows that you are likely to repay any balance every month, denying them profit. The ideal (i.e. most profitable) credit card customer are those who are perpetually increasing the debt, but always meeting the minimum repayment. These companies make money by charging interest on money they have lent you. Don’t spend and you don’t owe them anything! Therefore, the same may apply to someone who uses credit cards, but always switches between 0% balance offers.

Some companies may also be scoring you on the likelihood of, and your suitability for, applying for more profitable products in the future – i.e. a 25 year old may apply for a credit card today, but might need a mortgage in the next year or so etc.

Lenders generally use a combination of their own guidelines and the records held by the ‘big three’ credit reference agencies – Equifax, Experian and CallCredit. But this doesn’t mean that the lenders know everything about you.

There are 3 basic information sources available to lenders;

- Your application – this will contain all the really pivotal information, such as your salary, what you’re applying for, whether you’re a home owner etc.

- Previous dealings with the company you’re applying for credit with – If you’ve had a similar product from a lender in the past, they will assess your conduct in the past. However, products you may think of as being from the same company do not necessarily have shared data, due to the Data Protection Act.

- Credit Reference Agencies – CallCredit, Equifax and Experian all compile information of applicants and all lenders will use at least one agency to assess an application. Credit reference agencies obtain their data from three main sources: Court records (i.e. have you ever been made bankrupt?), Electoral Roll information (are you registered at your current address?) and your financial data (financial organizations generally share your financial history, any defaults you’ve had etc)

However, even this does not mean they know everything about you. For example, they do not know your medical history, what savings accounts you hold, your criminal record, information on your relatives or student loans.

Checking your credit scoring records

Keeping an eye on your credit profile is important if you want to apply for credit and get the best deal. It’s worth checking the information on it at least every 12-18 months. You have a statutory right to make an application to view the information on your credit records, by paying £2 per credit reference agency. However, this usually takes over a week.
It is possible to view your profile for free. The major agencies offer enhanced “credit monitoring” services that help you avoid being the victim of fraud. These services are usually under £7 per month, but they currently give you 30-days access for free, with the option to cancel before any payments are taken.

Experian offer a product called ‘Credit Expert’ which costs £6.99 per month

Equifax’s equivalent product is ‘Credit Watch Gold’ which costs £7.50 per month.

Both offer detailed information about your credit history, in an easier-to-read format than the standard forms and both can be cancelled during a trial period. Be warned – to get an account in both cases you have to provide a direct debit instruction – be sure to cancel this within the specified time or you will be charged!

Checking your details

Once you have your report(s), the first thing to do is check for any inaccuracies, which are relatively common, given the vast volume of information processed by the agencies. Remember – this is the bulk of the information that lenders will judge you on, so ensure it’s an accurate reflection of your circumstances and your history.

If you feel that any information, regardless of how minor you think it is, is incorrect, you need to write to the agency that produced the report and request that it be changed.

In certain circumstances, you may need to speak to the lender who provided the data to the agency. If they refuse to change the data, it is possible to add a ‘notice of correction’ to your file. This is your opportunity to clearly and concisely explain the error in a reasonable and factual manner.

Improving your credit score

Beware of any company offering to improve your credit score. They cannot do anything that you can do for yourself, for free. There are several key areas you can work on.

Firstly, ensure that you are on the electoral roll. If you’re not, write to your local council and get registered. When applying for any kind of credit (loans, insurance, mobile phones etc), try to space out applications, as clusters of requests for credit all at the same time will hurt your score.

If you have a poor track record with credit, it is possible to go some way to ‘repairing’ your score. Companies like Barclarycard and Capital One have incredibly high-interest cards for those with a ‘high risk’ profile. If you get accepted for one of these cards, use them a little every month – fill the car up for example – but be strict and ensure you pay the ENTIRE amount back before the month end to avoid paying the high interest. Build up a years-worth history of this and you should be accepted for a standard rate card.

If you have been rejected for a high interest card, the only alternative is to apply for a ‘pre-paid’ card, such as the Cashplus CreditBuilder. There is a £9.95 admin fee for opening and account and you have to load the card with money before spending on it, hence the term ‘pre-paid’. However, as there is a £4.95 monthly fee, technically meaning that you’re receiving a loan of £59.40 over a year. Providing you pay the fee every month, Experian will record you as having fully paid back a loan, which in turn will improve your scoring.

From the lenders point of view, proof of stability is important. Therefore, employed home owners tend to score higher than those who rent and are self employed. Always put your landline telephone number on applications if you have one.

Importantly, if you get rejected for credit once, do not try somewhere else before viewing your file, to ensure that there are no errors on it.

If you already have any cards or accounts that you do not currently use, cancel most of them as soon as possible. You may not have used that card since the 0% incentive rate expired, but it still give you a theoretical access to £xx,000’s worth of credit!

Remember that honesty is vital when correcting errors on your credit file and being inaccurate could amount to fraud. It’s also worth pointing out the lenders judge you on your historical behaviour, so it’s possible that someone who has never had credit of any kind could be rejected for an application because there is no history!