Credit cards » What you need to know about credit reports

When you apply for a credit card, the bank or building society to which you have applied takes a close look at your credit report. The information they find here determines whether they choose to offer you a card, and if so, they rate of interest they offer.

Every time you apply to borrow money, lenders check to see what kind of credit risk you pose. They gather information from any of three main credit reference agencies: Equifax, Experian and Callcredit. Each of these agencies has a file on each of us, detailing our recorded borrowings, lending and the like. Lenders will usually ask one or two of these agencies for information – mainly Equifax or Experian as CallCredit is still relatively new.

What's on your credit report

Your credit report contains all of your official, on-record financial dealings. This includes whether you are on the electoral roll, as well as details of court judgments, bankruptcies, and your current and past credit commitments. It also includes any missed or defaulted payments over the last six years.

All these facts paint a picture about whether you are a reliable borrower. The more reliable you seem, the more likely it is that your application will be accepted, and that you will be able to borrow money at low interest rates… or even to borrow money at all.

Credit checks and your credit report

When someone runs a credit check on you, they learn about the number of credit cards you have, the amount of credit that's available to you, and any outstanding balances you have. They can also see how many credit applications you have made in the recent past (although they won’t be able to see whether or not you were granted that credit).

Keeping your credit report clean

You may have heard of the term ‘search footprints’. Every time someone searches your credit report, for whatever reason, a footprint is left behind. This isn’t necessarily a bad thing, but a flurry of footprints can look suspicious, as it may indicate you have made a lot of applications for credit over a very short period of time. This makes lenders think you can’t survive without credit.

Another thing that blips on lenders’ radar screens is if you have several dormant accounts or lots of credit cards with, collectively, large amounts of credit available for you to potentially go on a spending spree. Lenders may also interpret an abnormal number of credit searches as evidence that you may have been a victim of fraud.

Two tips for a healthy credit report

No one can search your credit report without your agreement. If you are applying for credit but are cautious about the number of search footprints on your report, consider asking the prospective lender for a quotation rather than providing permission to make a full search. A quotation should not necessitate a search of your records and, if it does, it should show up only as a quotation search, rather than a search proper, which will not affect your chances of being given credit in the future.

Our second tip is to keep on top of the information held about you by regularly checking your credit record yourself so you can see what the searchers are seeing. This is the best practice for catching any fraudulent activity, as you will see if anyone is using an old account or using your name to open new ones. You can also save yourself untold headache and hassle by correcting any errors.

We suggest you check your credit report at least once with both of the main agencies, Experian and Equifax, if only to confirm that the information they hold on you is correct.

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