Have you seen a copy of your credit report? If not, you’re not alone. Many people don’t see theirs because they don’t think they need to. Or because they’re worried about what they might find. But it’s well worth getting hold of a copy. And if you’re credit rating isn’t very good, you can improve it. Here are 10 things you need to know about your credit rating.
10 things you need to know about your credit rating
1. Get hold of a copy of your credit report
2. By law, you’re allowed see your credit report for free
You have a legal right to check your credit report free of charge. You used to be charged £2 for this, but since the new GDPR law in May 2018, it’s now free.
3. You have the right to correct any mistakes on your report
If you see something on your credit reference file that isn’t correct, you can get it corrected. You should contact the credit reference agency and ask them to put it right. They have 28 days to correct the mistake, tell you why it thinks the information is correct or update you. The information has to be marked as ‘disputed’ and a credit company can’t rely on it when working out whether or not to lend you money.
4. You can explain late payments or debts
If, for example, you’ve missed some payments or got behind with them, so the information on your credit report is accurate but doesn’t tell the full picture, you can add a statement of up to 200 words that explains why.
SAMPLE WORDING: For example, you might say: ‘I was late with two payments on my credit card because I’m self employed and two of my biggest customers paid my invoices late. I’ve now made up the payments and am paying all my credit agreements on time.’
The statement is called a ‘notice of correction. It’s not really about ‘correcting a mistake’, more putting any problems on your credit report in context.
5. Your credit file may be linked with someone else’s
If you have a joint account with an overdraft facility or you’ve taken out a loan (including a mortgage) with someone else, your credit files will be linked. That means if you apply for credit in your own name, any prospective lender could also look at the credit file of the person you’re linked to. Their credit rating could affect you even if you only apply for credit in your own name and not in joint names.
SAVVY TIP: You can ask to have the financial link or ‘association’ as it’s called, broken. You can normally only do this if joint accounts have been closed and you don’t live at the same address. There are some exceptions. You can read more about this in my article called How to get rid of a financial association or financial connection.
6. Checking your credit report won’t damage your credit rating
It’s a bit of an urban myth that if you check your credit report you can damage your own credit rating. It’s not true. What can damage your credit rating is if you apply for lots of credit in a short time, or if you apply for credit repeatedly after you’ve been turned down.
7. Companies can carry out ‘hard’ and ‘soft’ searches
In most cases, if you apply for credit, the credit provider will check your file. In some cases if you apply for a quotation for credit, your file will also be checked even if you don’t actually proceed to get the card, loan etc.
If the search leaves a trail that other credit providers can see it’s called a ‘hard footprint’. If it leaves a trail that only you and the credit provider can see, it’s called a ‘soft footprint’. In that case, other lenders won’t be able to tell that you’ve applied for credit with this company.
SAVVY TIP: See if you can find out if the credit provider will do what’s called a ‘quotation search’ rather than a ‘full search’ if you are trying to find out what interest rate you might be charged for credit. A quotation search won’t leave a hard footprint on your file.
8. Different credit providers have different ways of credit scoring
Your credit score or credit rating is a measure of how likely a bank, credit card provider or other lender thinks you are to repay money you’ve been lent. Lots of factors are taken account of – some more logical than others – and they can vary from company to company.
Generally, you’ll get a higher score if you’re employed rather than self-employed, if you have credit you’ve paid back rather than if you’ve ‘lived within your means’ and never borrowed and if you’ve not had too many changes to your circumstances in recent months, such as such as moving job, moving house and moving bank account at the same time.
SAVVY TIP: There’s more information about How to improve your credit score so you pay less for loans and credit in my article and in my short video on How to improve your credit score.
9. Some information could stay on your record for six years
If you have a county court judgment (called a ‘decree’ in Scotland), it will remain on your credit file for six years. Bankruptcy (called a sequestration in Scotland) will also remain on your file for six years from the date of your bankruptcy order (so it will remain on your file after you’ve been discharged from bankruptcy).
SAVVY TIP: If you’ve been declared in default on a credit agreement (which normally means you have to have missed three monthly payments), this will also be recorded on your credit file and will stay there for six years. You can find out more about Understanding default notices elsewhere in this section.
10. A late payment may not show up on your credit file
If you’re a few days late with a payment it may not show up on your credit file. It will depend on how often the credit provider sends repayment information to the credit reference agencies. If you’re late making a credit card payment because, for example, you were on holiday, you may be able to make the payment and not to have your credit file affected, although you’ll probably be charged a late payment fee.
Photo credit: Morguefile/Grafixar
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