A thumbs-up (or down) for mortgage, loan or credit card applications largely depends on personal records showing how financially responsible you are.
But too often borrowers only check their files once a problem has arisen and an application has been rejected.
Here, we explain what you need to know about your credit file – before it is too late.
Blighted: Holly had her credit rating destroyed
Holly O’Donnell found her life blighted when incorrect charges applied by her mobile phone network, Vodafone, destroyed her credit rating.
The 26-year-old conservation biologist was denied funding for her postgraduate studies after the company chased her for debts she did not owe.
Only after The Mail on Sunday intervened was her file corrected. But although Holly got her life back on track, she is not alone in suffering the effects of a tarnished credit record after trying to open a bank account or secure a pay-monthly mobile phone deal.
In some cases householders are unable to move forward with their lives – undertaking home improvements or remortgaging, for example – if companies wreck their records with false repayment information, so it is vital to understand your credit file.
WHAT A CREDIT FILE IS
It is a financial record of every borrower in the UK – those with mortgages, credit cards, loans and pay monthly mobile phone contracts – showing their repayment behaviour over a six-year period.
The payment of utility bills such as gas, electricity and water is also shown.
Reports summarise whether customers have met their financial commitments on time, whether there have been late or missed repayments and if an account holder has experienced past solvency issues such as bankruptcy or county court judgments.
Credit reference agencies hold the information. There are three – Experian, Equifax and Callcredit. Companies send these agencies information about their customers monthly and the agencies are responsible for updating customers’ records. You can visit their websites at experian.co.uk, equifax.co.uk and callcredit.co.uk.
‘I was in a vicious circle – I couldn’t borrow… because I had NEVER borrowed’
‘Brick wall’: Janet McGaw struggled to open a bank account
Janet McGaw was a mid-life ‘credit virgin’, having never used a credit card or any other form of loan in the UK before she moved to Spain more than 13 years ago.
The 54-year-old cafe worker moved back to the UK last year and now rents a home near Fleet, Hampshire, but found laying financial foundations a challenge as she had no credit history.
After living briefly with her daughter, Janet decided it was time to set up on her own again but found this tricky as she was ‘invisible’ to lenders.
She says: ‘I had no credit rating, which is arguably worse than a poor rating. I even struggled to open a bank account for my wages because living at my daughter’s house meant I had no proof of a fixed address. It was like hitting a brick wall.’
Her partner Daz Murray, 44, was also turned away for a mobile phone contract for the same reasons. As a result of the difficulties they faced, Janet looked at her credit rating and discovered the vicious circle she was in – she could not borrow without a history of borrowing.
After researching her options she took out a £2,000 loan, over three years, from Amigo. The company is a guarantor lender, which lends if a borrower is vouched for by a friend or relative. Janet’s daughter was her guarantor.
With rates at 49.9 per cent a year, its loans are more expensive than deals available to people with full and excellent credit histories, but cheaper than those offered by some rivals to people with poor or no credit records.
Guarantors are ultimately responsible should a borrower fail to repay. So there needs to be a strong bond of trust between friends or relatives signing up to such a deal.
Other guarantor lenders include UK Credit and Buddy Loans.
Janet’s loan meant she could find a home to rent and buy furniture and appliances.
She adds: ‘I have been able to overpay on the loan without incurring charges and I am hoping to clear it early.
‘My credit rating has also improved as a result.’
WHAT THEY SHOW
The files provide details of people you are financially linked to – such as a spouse with whom you have a mortgage or joint bank account. Any application to borrow money will show up on your file, as will your status on the electoral roll confirming you are registered to vote at your given address.
Jacqueline Dewey, managing director of Noddle, the free credit report service from Callcredit, says: ‘This is a major piece of information that is used to validate and verify your identity. Without it, you would be invisible.’
Appearing on the electoral roll helps to improve your ‘credit score’ – a number that indicates your financial reliability as a customer.
The higher your score, the lower risk you are perceived to be. This means you are more likely to get any deal you want at the best rate.
The three main agencies may show different scores but the average score for Experian customers is currently 760 – on a scale from zero to 999 – which is classed as ‘fair’.
Offers: Being accepted for a credit card does not mean you will be offered the lowest rate that has been advertised
WHY CREDIT FILES MATTER
If you want a loan, mortgage, credit card or new pay-monthly mobile phone contract, you are asking for credit. What stands between you wanting and getting it is the information stored on your file.
Lenders will refer to these records to check you are a safe – and profitable – customer to lend to. If you are, the information held about you will help lenders determine what rate to offer. Being accepted for a credit card does not mean you will be offered the lowest rate that has been advertised.
James Jones, of Experian, says: ‘An excellent credit history will help you make successful applications and should make it more likely that you qualify for the best deals.
‘So it’s important to borrow, stay within credit limits and make agreed payments on time.’
PROBLEMS THAT CAN ARISE
Anyone with a poor borrowing history can take steps to repair their damaged credit rating. But serious flaws or errors that go undetected can have a devastating impact when you need financial help.
For example, moving house and failing to settle old utility bills could trigger a county court judgment – a court order registered against you for unpaid debts.
Lisa Hardstaff, a credit expert for Equifax, says: ‘When moving house it is vital utility accounts are closed and the final bill paid. You should also give suppliers your new address.’
If a debt is not paid off in full within 30 days of receiving a judgment, it stays on a person’s record for six years.
Having joint financial arrangements with a person who is in debt and careless about repayments affects your record too. Even if this person is an ex-partner and an account is settled and closed, the link can still impact your chances of borrowing. Household bill providers that make blunders on accounts can also ruin your credit rating.
Debts: If a debt is not paid off in full within 30 days of receiving a judgment, it stays on a person’s record for six years
NO CREDIT HISTORY
Having no credit record can be just as bad as having a poor history. More than 1.5million people are thought to be middle-aged credit virgins – people over 45 who have never borrowed from a bank or lender, according to research by loans company Amigo.
Its chief executive, Glen Crawford, says: ‘So often we hear customers ask why their bank would not lend to them when they are so good with money and have never had a credit card in their life. But if you have never demonstrated you can be trusted, lenders shut the door. This is unfair and leaves lots of deserving, trustworthy people without access to finance.’
Sharing rental payment history can improve your situation. Landlords of social housing tenants can give agencies your rental payment record. But if you rent privately, create your own record by paying via Experian’s free Credit Ladder service. You pay your rent to Credit Ladder, which transfers the money on time to your landlord and tracks your up-to-date payments.
To build a credit history from scratch you can try special credit cards aimed at borrowers in this position. They come with poor rates compared with best-buy offers, but no interest is charged if you repay in full each month. Try providers like Aqua, Luma or Barclaycard. The latter’s Barclaycard Initial deal has zero per cent interest on purchases for three months and ongoing access to your Experian score.
There are also credit-builder prepaid cards, where a card is pre-loaded with money. Monthly fees are treated as repayments of a small annual loan. Examples include Cashplus pre-paid MasterCard and iCount pre-paid MasterCard. Neither need to check your credit history to offer an account.
CHECKING YOUR FILE
It is best to check your file regularly, especially in advance of applying for a deal so problems are picked up early and rejection avoided.
Dewey says: ‘If applying for credit, you want to ensure that your record is as good as it could be.’ Company data breaches serve as a reminder to check files. Customers whose personal details have been compromised and potentially fallen into the hands of criminals must ensure products are not being applied for in their names. Checking your file does not affect your credit score – as many people believe.
FIND A FREE SERVICE
There are several ways to check your report and score without being charged. Experian’s credit score via CreditMatcher is free, but to see full details of your report, you need to sign up to a free trial or pay £15 a month. Alternatively, order a ‘statutory’ £2 report, which shows the basic information on your report without a score or guidance.
ClearScore and Noddle provide free access to your report and score. They are linked respectively with Equifax and Callcredit. It is best to check your information at all three agencies because there is no knowing which one a lender will rely on.
– Set up a mail redirection service with Royal Mail if moving home to ensure all correspondence from lenders reaches you.
– Settle and close all accounts held with an ex-spouse or partner and notify the agencies so you can place a ‘notice of disassociation’ on your file, showing you are no longer financially linked to that person.
– Pressure any company that has made inaccurate entries on your record to fix the error immediately. Credit reference agencies have an online tool for companies to make urgent, overnight amendments on people’s records, rather than the usual 30-day cycle for updates.
– Inform the credit reference agencies about any inaccuracies as well as the company responsible.
– Add a ‘notice of correction’ if you feel there is compelling information future lenders should take into consideration – such as a missed payment after losing your job or being in hospital for an operation. This explains your circumstances. It may not change a lender’s decision but it will be taken into account.