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When you apply for any type of credit including mortgages, loans, monthly paid insurance premiums and even if you are about to rent a house or flat, a lender or the property letting agency will run a credit check on you. This involves requesting a copy of your credit report from one or more of the UK's three credit reference agencies - Equifax, Experian, and TransUnion. The lender uses it to understand what kind of borrower you are. Your credit report includes information such as:
• Details of your credit, bank and savings accounts
• Whether you are on the electoral register
• Your current and previous addresses
• Details of people who are financially linked to you
• Details of any CCJs or Bankruptcy
And crucially, your payment history for credit you have or have had in the past. It is updated monthly when lenders report the status of your payments for example, paid on time, paid late or missed. The data is held for approximately 6 years.
Your credit report is different from your credit score, which is a number calculated from the information in your credit report and gives lenders an indication of whether you're likely to be a good risk (a higher number corresponds to a better credit history). You don't have just one credit score; in fact, you're likely to have at least three or more. Each credit reference agency creates its own score and each lender will also create its own score based on the information they get from the credit reference agencies they use. While these scores may be different, the factors that go into changing them are extremely similar. They all use your payment history, how often you apply for credit, how long you've had accounts and other information in your credit report, to calculate a score.
A lender uses the data when deciding whether to accept you for credit and what rate of interest you'll be offered. Lenders want customers who are likely to repay them on time, or are “low risk.” The lower your level of risk, the more likely you are to get accepted for credit and be offered better interest rates.
Just like a strong CV, a good credit profile is one of the best things that you can establish for your future, often referred to as 'building your credit'. With a good credit profile, you qualify for better interest rates. It can influence the jobs you can get, the cost of your utility bills and even affects how much you pay for life insurance. Similarly, a bad credit rating will make it more difficult to borrow and qualify for the better interest rates. You'll face higher charges and will miss out on offers and deals. So, it is important to do as much as possible to ensure that your credit scores and reports are as good as possible.
Again, just like a strong CV, building your credit is not difficult. It just takes time and dedication. There are many ways to improve or maintain your credit profile and score. For example; pay your bills on time, make your payments on time, only apply for credit when needed and keep your balances low.
Thinking about your credit score and credit profile are easy things to put off for the future but it is important to stay on top of your transactions and activity. Simply checking your score every month is a great way to make sure that you are on track - and can be a good “wake-up call” if you need to make some changes. So if you're currently not working on building your credit profile and credit score, now might just be the right time to start.
Did you know that a Creitspring membership can help you build your credit?
