Financial ups and downs are common; few UK consumers don’t experience highs and lows, managing money. When cash is flush and your job’s secure, the last thing on your mind is bad credit. But lose your income, miss a few payments, and all of a sudden, bad credit is all you can think about.
There’s a substantial distance between an excellent credit score and a completely corrupt credit file – most Britons occupy the middle ground. Unfortunately for consumers experiencing credit problems, it doesn’t take long to close the gap, dragging your credit score from respectable territory, all the way down to the bottom of the barrel.
Most people are aware of credit reporting, but until you run into financial difficulty, you may not fully understand the concept or its role in your financial life. Even if your credit is strong, learning more about credit reporting practices can help you establish good credit references, protect your score, and recover when your credit file takes a hit.
About Your Report
A credit report is like the financial diary you never kept. Though you probably haven’t noted details about all your credit relationships, others have done so for you. Professional credit reference agencies have been making entries in your financial diary for as long as you’ve been a credit consumer. The agencies’ reports serve as documentation, chronicling your lifelong success and failure managing credit and finance.
Your credit report contains information about the credit accounts you’ve held, including joint loans and bank accounts shared with other people. Credit reports also help confirm your identity, providing addresses from your past and present. The documents are produced by three overreaching credit reference agencies, Experian, Equifax, and TransUnion – once called Callcredit in the UK.
Because these three commercial credit reporting organisations have access to different data about each UK consumer, you can expect the three credit reports to have minor differences, despite profiling the same individual.
What’s In It?
Creditors use credit reports to evaluate applicants and make decisions about loans, credit card accounts, mobile phone contracts, energy service, and other credit accounts you may need. The reports contain information such as:
- Legal address
- Date of birth
- Are you on the electoral role at your present address
- County Court Judgements (CCJ) against you
- Bankruptcies and Individual Voluntary Agreements (IVA)
- Late payment on past and present loans and credit accounts
- Total owed on outstanding balances
Though your credit report contains timely facts about your finances, the document doesn’t include personal information about your medical, driving, or criminal history, nor does it share your income, savings, or council tax arears.
Don’t Believe Everything You Hear
Your credit score is serious business, significantly impacting your financial life. As important as it is, however, credit reporting fallacies can add to the worry surrounding credit reporting.
You’re on the list – Rumours have long circulated, referencing a global master list of people with bad credit. Believers think banks have access to the reference, enabling lenders to summarily decline loan applications from the select group. The fact is, there is no credit blacklist identifying consumers with bad credit.
There’s a single score – Each lender maintains its own eligibility standards, so there’s no universal credit score that guarantees every applicant’s approval. Instead, lenders evaluate each applicant, based upon information contained in his or her credit file, using their own formula for approval. Bad credit lenders, for example, offer flexible short-term financing online. Because each providers applies its own set of metrics, you may be denied at your bank, yet still qualify for an online loan.
Credit reference agencies have a say – Credit reporting agencies are independent organisations, separate from banks and other financial institutions. Though they provide data that may influence lenders’ decisions, credit agencies have no direct input, deciding whether or not you’re approved.
Whether you like it or not, credit agencies keep a watchful eye on your financial activities, providing information creditors use to evaluate applications. Timely payments and consistent credit habits are all that’s needed to preserve and protect a good credit score. Staying on the right side of these credit reporting practices makes the job much easier.