Credit Checks and your Credit Score

Definition of a Credit Check

A credit check offers a way of seeing how creditworthy someone is. The more creditworthy you are, the better risk you are to lenders, and the easier it will be to borrow money when you need it. The less creditworthy you are, the worse risk you represent. In extreme cases, you might find it hard to get a mortgage, finance a car or even open an ordinary bank account.

Who does Credit Checks, and who provides the data?

Banks and other lenders request credit checks to see whether to lend to potential borrowers. Potential employers and landlords might also want to do a credit check. All these people will need your permission in order to obtain your information.

You can also ask to see your own credit report. There may be a small fee for this. There are good reasons to do so: to see what your credit rating is, to make sure it’s up to date and to ensure you haven’t been a victim of credit theft.

About Credit Reference Agencies

Companies called "credit reference agencies" hold detailed files on everyone who has applied for loans or credit cards. The three best-known credit reference agencies are Equifax, Experian and Callcredit. When someone requests a credit check, they do so using such an agency. The results of the credit check are summarised in a credit report which lists the recent credit history of the borrower. It also provides a credit score or rating. The worse your credit history, the lower your credit rating will be.

What information do they hold about me, and for how long?

Each credit reference agency collects different information, so your credit report will look different from each one. However, they all show whether you’ve been declared bankrupt or entered into an IVA, whether you’ve had a County Court Judgment (CCJ) against you, whether you’re on the electoral roll, notices of dispute (where you have protested about an entry complaining about its accuracy), notices of correction (where you have posted a message explaining an entry), and non-credit searches (for example, by potential landlords or employers).

They may also include credit applications by you, your payment history on your loans, whether you’ve had your home repossessed, names of companies which have lent to you, and any special payment arrangements you’ve made with lenders such as reduced payment agreements. Less important entries such as details of who has searched your file will stay on your file for two years or less. More serious matters such as insolvencies, CCJs and defaults on loans will remain for six years.

How do I see my credit report? Who else can access it?

You can see your report by contacting a credit reference agency and requesting it (and possibly paying a small fee). It might be worth obtaining your report from all three major agencies to ensure that they’re all up to date and accurate. Lenders, landlords and employers could all access your report, but as we’ve said, only with your permission. However, it’s likely to be a condition of applying for a loan or to become a tenant that you have to give your permission.

How can I improve my credit score?

If your credit rating is low, you may want to try and improve it (or “repair” it, as this process is also called). There are various things you can do.

  • The first thing to do is to ensure that you’ve done the things the agencies expect. For example, not being registered on the electoral roll is a bad idea. Similarly, if you don’t have a bank account, lenders might conclude that you’re not good at handling money.
  • Second, check your details thoroughly on your credit report. Mistakes can creep in to these. If there are any, you can have them fixed – which will boost your credit score.
  • Third, be careful how you apply for credit and how you cope with it. Don’t run up lots of debt which could cause future problems if your circumstances change (like losing your job). Try to make all your payments on time; paying late damages your credit rating. If you’re turned down for a loan, don’t immediately apply to lots of other lenders. Every application is shown on your credit report.
  • Deal with any problems that can be dealt with. For example, if you default on a loan that information will stay on your report for six years – but if you pay back the loan the default will be marked as “satisfied”, which is much better than doing nothing. It will show that you’re cooperating with your lenders and trying to improve your situation.
  • Lastly, be patient and get help if you need it. Remember that even an insolvency will drop off your report after six years. Also, there are various debt help agencies that might be able to help if you get into difficulties.

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Updated on 19th December, 2009

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