Understanding Credit Reports

A credit report is compiled by credit reference agencies by using information from two main sources:

• The Public Record e.g. electoral roll information, court judgements, individual voluntary arrangements (IVA) and bankruptcies.
• Information provided by lenders and financial institutions e.g. credit accounts, credit applications and financial associations.

Your credit report is very important as it contributes to a lending decision and can be the key factor in whether or not you are granted credit upon application. Many organisations will take your credit report, and any additional information included on your application form, in order to generate a credit score. This score is then used as a means of predicting the risk involved in granting you credit. You do have the right to view any information in your credit report in order to make sure all is correct. Any errors found in your credit report can of course be corrected. It is therefore crucial that you actually have the right to challenge such errors as an incorrect credit rating may affect the interest rates offered to you by lenders.

Should you wish, you can view your personal credit information by applying online to Experian, the largest UK credit reference agency.

Your national credit score is based on your Experian credit report and is an excellent guide to see how lenders assess the information present on your credit report. Your score is numbered between 0 – 1,000 and the higher the score the easier it will be to be granted a loan etc. However, each credit application could in fact generate a different credit score and over time your score will actually change as the information held in your credit report and your credit application also changes.

A credit score basically predicts how you might be inclined to repay a loan and if you are likely to make your payments on time. They also allow lenders to make their decisions more efficiently.

Any court judgements remain on your credit report for a 6 year period from the date of the judgement and judgements that are paid off within 1 month are removed from your record providing a certificate of satisfaction has been issued by the court. Judgements paid after 1 month are kept on file but upon receipt of a certificate they are then marked as satisfied. Bankruptcy declarations are also kept on record for 6 years after the official date of the bankruptcy order.

Credit agencies keep a record of settled accounts for six years from the date you paid off all amounts owed to that account. Credit accounts can be classed as 'settled', 'active', 'defaulted', or 'delinquent'. The payment history shown on your report will relate to the period before you repaid your credit. A settled account is one where you have repaid your credit An active account is one which you are still using. Agencies keep a record of these accounts until they are settled and then for six years afterwards. A defaulted account is one where you have not kept to a credit agreement. Agencies keep a record of these accounts for six years from the date you broke the relevant term of the credit agreement. The record will show how much money you still owe (the default). If you have paid off everything you owe since you broke the credit agreement, the account will be shown to be ‘satisfied’ at the balance. A delinquent account is one where your repayments have been at least three months in arrears for two or more consecutive months or have been late for more than three months over the past year.

Each time you apply for credit the lender will carry out a search on your report. This search will be recorded and filed in your credit report for a period of 12 months. Such information can be useful to lenders to see any unusual credit activity such as too many financial commitments which may give defaults and result in a high risk customer. Once again, access to such information can have a strong influence on any decision the lender will make.

Published on September 22, 2007