These days your credit report is the overriding single factor that influences your access to lending as well as the price and terms that lenders will offer to you. It applies equally to personal borrowers, limited companies and company directors.
To improve your credit report you need to understand the elements that make up a credit report.
The credit score
Always the first thing most borrowers look at. It is also the single most misleading and pointless item on a credit report. Lenders don’t look at the number, they are interested in the content of the credit report and will base decisions on what the content tells them.
What your credit report tells a lender
The credit report gives the lender an overview of what you will likely be like as a borrower. They compare what they know about you to the experience they have with people with similar characteristics.
Over recent years the information a lender can garner from your credit report has grown. As a summary your report tells a lender, among other things;
- If you’re desperate for credit
- How much money you owe and to who that money is owed
- Repayment habits, such as if you pay on time or pay late
- Spending habits
- Where you live
- If you run away from your debts or are stable and reliable
- Your Financial Associations including partners, people you live with or who you share responsibilities with
- Fraud history, being whether lenders or insurers suspect you have provided fraudulent details previously. It also highlights whether you have been a victim of fraud yourself
- Court & public records including CCJs, IVAs, CVAs etc
The bottom line here is to borrow and pay it back on time. Don’t borrow everywhere and keep your finances relevant to what you earn.
Taking that a step further;
- Make sure you are on the electoral roll so lenders can find you and link your details to your credit report
- Make your payments on time. This includes utilities and mobile phones. If you can’t, or think you may not be able to, contact the lender or provider before your payment falls due
- If you have paid a court judgment (CCJ), make sure it is shown as satisfied on your credit report. If not, contact the court. The same applies if the CCJ should have been removed. A satisfied CCJ is very different from a CCJ that should be removed. If it doesn’t look right then contact the court
- If you have paid off a credit account but your report doesn’t show this, contact the organisation and ask them to update your record. It is not unusual for records not to be updated correctly
- Avoid credit repair organisations. The OFT (Office of Fair Trading) recently issued a warning that the advice and information provided by credit repair organisations are often wrong and unhelpful and can even make the situation worse. This happens because whilst the credit repair organisation can negotiate lower payments with lenders, the lender will register this as a default or part payment which doesn’t help your report. This report from The Money Charity gives more detail
- Keep an eye on your credit report. It is worth checking your report before you apply for borrowing as it is the only time you will see what the lender sees before the lender sees it. There are loads of credit report monitoring companies out there, Checkmyfile, Experian and Credit Karma are just a few
Hope the pointers help.
By Dave Farmer