Your credit rating plays a crucial role in your financial life. Lenders use it to help decide if they'll give you a loan or credit, how much they’re willing to lend, and how much interest rate they’ll charge you.
If you’re looking into getting a mortgage, credit card, or loan, a good credit rating can make a significant difference in getting a good deal.
What Is Your Credit Rating?
Your credit rating is essentially a score that lenders use to assess your credit history. It’s based on a record of how you've managed credit and debt in the past. When you apply for any type of credit – whether it's a credit card, personal loan, mortgage, or even a mobile phone contract – the lender will check your credit report.
Three main credit reference agencies operate in the UK: Experian, Equifax, and TransUnion. Each agency holds its own credit file on you, which lenders can access to help them decide whether to approve your application.
What’s Included in Your Credit Report?
Your credit report typically contains:
Credit Accounts: This includes details of any credit arrangements you have, such as bank accounts, credit cards, loans, and utility company debts. This shows whether you’ve made repayments on time or missed any payments. This record can go back at least six years.
Financial Associations: If you have any joint financial arrangements, such as a joint mortgage or loan, this will be noted. It means you’re financially linked to the other person, and their credit behavior can affect your credit score.
Public Records: Any County Court Judgments (CCJs), bankruptcies, home repossessions, or Individual Voluntary Arrangements (IVAs) will be listed. These can stay on your report for six years, significantly impacting your credit rating.
Electoral Register Information: Being registered on the electoral register at your current address can improve your credit score.
Personal Information: Your name, date of birth, current and previous addresses will be included in your credit report.
Fraud History: Any instances of fraud or fraud attempts you’ve committed may be listed.
What’s not included in your credit report?
Details such as your salary, religion, or any criminal record are not part of your credit report.
However, it's essential to note that employers, landlords, and utility companies might check your credit report before making decisions about you, although they usually see only basic information like public records or your electoral registration details.
How to Check Your Credit Report
You’re entitled to access a copy of your credit report for free from any of the three main credit reference agencies: Experian, Equifax, and TransUnion.
It's a good idea to check your credit report from all three agencies, as the information they hold can sometimes differ. This gives you a full and accurate picture of your credit history.
Correcting Mistakes on Your Credit Report
Mistakes on your credit report can negatively affect your credit rating, so it’s vital to check regularly and address any errors. If you find any inaccuracies, follow these steps:
Raise a Dispute: Contact the credit reference agency that holds the incorrect information and raise a dispute. They will investigate the matter with the company that provided the data, such as your bank or loan provider.
If you cannot resolve the issue directly with the agency, you can contact the Information Commissioner’s Office, which oversees how personal information is handled.
If you’re not satisfied with the response from the credit reference agency, you can escalate your complaint to the Financial Ombudsman Service. However, you must give the agency up to eight weeks to resolve your issue before contacting the Ombudsman.
How to Improve Your Credit Rating
Improving your credit rating can open up access to better financial opportunities, including lower interest rates and more favourable lending terms. Here’s how you can boost your credit rating:
Check for Errors and Discrepancies: Regularly review your credit report to make sure all information is accurate and up to date. Any inconsistencies could harm your credit score.
Make Timely Payments: Paying your bills on time is one of the most effective ways to improve your credit rating. Lenders see a history of timely payments as a sign of reliability.
Register on the Electoral Roll: Ensure you’re registered to vote at your current address, as this can have a positive impact on your credit rating.
Manage Credit Responsibly: Having little or no credit history can lower your credit rating because lenders want to see how you handle credit. Consider using a credit card responsibly and paying off the balance in full each month to build a positive credit history.
Separate Yourself from Financial Links: If you’re no longer financially connected to someone (e.g., an ex-partner), ask the credit reference agencies to remove the link. This ensures that their financial behaviour won’t impact your credit score.