Clearing up confusion over credit reports, scores

By Benjamin Salisbury

Many UK consumers are confused about at least their credit reports, believing, for example, that there's a "credit blacklist" or that checking your credit report is damaging to your rating. However, many of these beliefs are unfounded. Getting the right information can help you improve your credit standing.

According to consumer group Which?, the four most common misconceptions about credit reports are:

  • There is a "credit blacklist" that prevents people from ever getting credit (77% of those surveyed by Which? in 2016 believe this).
  • Credit reference agencies decide who should get credit (60%).
  • All credit reference agencies hold the same information about you (54%).
  • Checking your credit report damages your credit rating (36%).

The data suggests widespread misunderstanding about the impact of credit reports and how lending decisions are made.clear-up-confusion

Credit report, score explained
The Which? survey revealed that 53% of people have never checked their credit score or obtained a credit report. As with other financial services, many people are put off by the cost and perceived hassle of accessing credit reports. However, there is nothing to be afraid of.

A credit report details your personal credit history over the last six years. It includes mortgages, credit cards, overdrafts, loans, mobile phone contracts and even some utilities. If you have ever taken out credit, a credit reference agency such as Equifax, Experian or Callcredit will have a report on you. Lenders, not credit agencies, can reject credit applications based on your credit score.

A credit score is a measure of how creditworthy you are in the eyes of banks and other financial product providers. The higher the score the more likely you are to get a loan, credit card or mortgage, and the better rate you are likely to get. You can improve your score by showing that you can manage credit well and repay debts in full and in a timely manner.

You can access your credit report for free from ClearScore or Callcredit. Experian and Equifax offer free month-long trials with unlimited access to your report and score, after which a £15 fee applies unless you cancel. ClearScore offers your credit score for free as well, but you must pay a monthly fee to access your score from Callcredit.

The Consumer Credit Act 1974 means everyone has the right to check their statutory credit report for only £2, online or by post. This gives a one-time snapshot of your credit history, meaning you do not get unlimited access to it. You also do not get a credit score with the statutory report.

Areas of confusion, cleared up
1. Checking your score doesn't hurt your credit.
Checking your score does not damage your credit rating, and it has no impact on future credit applications. In fact, it can be beneficial because you can spot fraudulent activity or incorrect entries and by putting those issues right, your score will improve.

You can also ensure that older products such as a previous personal loan, old credit card or other account you thought was cancelled are not still on your credit report.

"If an individual pays a delinquent account then it will appear on their credit report as ‘settled'," Lisa Hardstaff, credit information expert at Equifax, said in an answer to emailed questions. "It is important for individuals to understand that old credit agreements will stay on a credit report for 6 years."

2. There are no "credit blacklists".
There is no such thing as a credit blacklist. Each lender makes its own decision based on your credit history and credit score.

"The myth of the ‘credit blacklist' is one that won't go away," said Hardstaff. "This may be due to the fact that consumers have been turned down for credit in the past and not asked the lender about the reasons why."

3. Credit reference agencies don't decide who gets credit.
Lenders, not credit reference agencies, decide who to lend to. The agencies simply provide the data to lenders so they can use it to assess individual credit applications.

4. Not all credit reference agencies contain the same information.
Your data may differ between credit reference agencies because not all lenders share all information with all three agencies. Consequently, your score could vary slightly among them as well. And not all agencies score on the same scale.

"Equifax uses proprietary and complex methodologies, utilising a range of characteristics based upon an individual's credit report, to create the Equifax Credit Score," said Hardstaff. "Factors used include an individual's payment history, length of credit history, electoral roll information and any outstanding debts. Credit score may vary between the different credit reference agencies due to the different methodologies used by each company."

5. You age does not count against your credit score.
Age does not affect your credit score. However, age may factor into whether a lender chooses to lend to you "if it means that they don't have enough of a credit history for lenders to assess their behaviour," said Hardstaff. In other words, an 18-year-old with little to no history isn't likely to be approved for a tonne of credit, simply because they have not proven their credit worthiness yet.

6. Your score is not automatically combined with your partner's if you get married.
Your credit score won't get combined with your partner's if you are living together or married.

"Individuals will always have their own credit score," said Harstaff. "Just because somebody gets married, it does not automatically make the two people financially linked. This only happens if they apply for a joint credit account together."

See related: Why and how to issue a notice of disassociation, Can social media help you get credit?

Published: 7 June 2016