Credit reports - what is a credit report?

What is a credit report?

A credit report is your official record of all credit agreements you hold now, or have paid off in the last six years. It contains repayment details, as well as address details for this period. The report is put together by credit reference agencies, and held securely until you or a lender asks to see it.

As well as basic information on credit accounts you have held, the report records any court judgements made against you or bankruptcies over that six year period. This is provided by the relevant authorities, from public registers. Local councils also provide address details from the electoral roll to verify your identity and residence.

Credit scoring

Despite credit reports being readily available, only a tiny proportion of the population regularly look at theirs. The remaining majority are therefore missing a trick – knowing, and where possible, fixing your credit report is key to building a solid financial foundation.

Through a process called credit scoring, your credit report is the document that decides if you will be granted credit for products such as loans, mortgages or credit cards. Your score is calculated in order to check the level of risk you represent to a lender. It’s worth remembering that different companies use different formulas to find your credit rating or score, and therefore your application could be accepted by a lender when another has already declined it.

Understanding your report: Your lending history

Your credit report shows your borrowing history for the last six years. Lenders provide information on all credit accounts you had in this period, which are then categorised:

Settled accounts

A settled account is one which has simply been paid off. A record is kept until six years after the last payment was made, and includes the repayment history of this credit whilst it was still outstanding.

Active accounts

An active account is one which is currently open and you are using. As with settled accounts these records are kept for six years after the credit is paid back in full.

Defaulted accounts

A defaulted account is an account where the credit agreement has in some way been broken. Record of accounts like this are kept for six years from the date on which the agreement terms were breached. The record will show any monies still left owing, or will be marked “satisfied” if it’s now been settled.

Delinquent accounts

A delinquent account can be defined in two ways. The first way for an agreement to become “delinquent” is for payments to have been in arrears for three months, and for this situation to have continued for two months or more. The second form of delinquency is for payments to have been late for more than three months out of the last twelve.

Each credit account featured on your report will have a status history, which will show whether payments were punctual or not. They are shown most recent first, for the last 12 months. They are given a number to indicate any late payments and how late they were, e.g. a payment marked with “3+” would have been paid over three months late, or is outstanding and has been for over three months.

Understanding your report: Public records

Credit reference agencies use local authority electoral registers to ensure the details they have are accurate every year. The electoral roll is published in December of every year and lists everybody registered to vote and where they live within a borough or district. The date on which they registered is also included, to give an idea of when those registered have changed addresses. In order to keep your report current and correct, it’s important to always register to vote at your address.

If you have ever had to go to court for a judgement related to your debt or have even been declared bankrupt, this information will be held in public records. Both will be noted on your credit report for six years after official proceedings have taken place. Court judgements can be removed from your record with a Certificate of Satisfaction is issued by the court, or can be marked as “satisfied” if they are settled more than a month after this.

Understanding your report: Other information

Your report may be marked “unrecorded enquiries”, which denotes a search made for non-lending purposes. This will only be visible to you and not any potential lenders. It may also show that it has been accessed by a lender to give a quotation for credit. This will show to other lenders but will be marked as a quote rather than a full application, and will have ne bearing on your credit score.

Several linked addresses may be listed on your credit report, and these will include your current address, previous addresses, and any addresses you have used for correspondence. This is essentially to trace a clear chronological path for your financial history, by illustrating all addresses you have lived at or used in the course of a contract, and detailing how these addresses are linked.

CIFAS and fraud on your credit report

CIFAS is a fraud prevention system, set up with the help of the Office of the Information Commissioner and the Office of Fair Trading. It aims to protect consumers who have their identities or personal details stolen in order to fraudulently obtain credit.

When a financial institution who is a CIFAS member detects a fraud, they place a notification of this on the defrauded customer’s record reading “CIFAS – Do not reject – Refer fro validation”. This means future lenders must look at applications for credit on these reports with caution, and taking into account that an innocent consumer has not been responsible for all contracts on the file. It prevents applications being automatically rejected on the basis of contracts obtained by criminal third parties, and protects defrauded consumers from suffering the same fate again.

GAIN – The Gone Away Information Network

GAIN is a network which shares information between lenders about customers who have moved house without informing those with whom they have credit. The network links addresses that customer has been registered at subsequently if they are available.

Other people on your credit report

Your credit report will show the names of any financial associates you have but it will not include their personal financial data. Only they can see that by applying for a copy of their own credit report. Prior to 2005 credit reports included financial information about other family members at the same address, but these days others’ financial situations should have no bearing on yours.

How do lenders use this to choose a “good” credit risk?

Lenders are looking for applicants who have a proven record of repaying what they owe, promptly and within the bounds of their credit agreements. However, this can prove a problem if you’ve never had to borrow. Although it’s not desirable to have a lot of debt outstanding or a history of late payments, lenders like to see a credit record which shows an ability to consistently pay back different forms of credit over time.

So, those with patchy or poor credit histories may find it difficult to borrow, or be penalised with higher interest rates. Similarly, those with no credit history may also struggle, as lenders are unable to determine whether they are credit-worthy.

Groups such as the under-30s or stay-at-home parents may suffer from this as they may have only had debt such as student loans, which are not visible on a credit report, or may have finances signed over to their partner as breadwinner. No matter how well off you are, it’s good to have some kind of record should you need to borrow in the future.

Steps to take if you’ve been refused credit

If you’ve been declined when making an application for credit, the reason for this will not show on your credit report. However, it may become obvious when you browse your report. The lender who refused you credit may tell you which credit reference agency they used, in which case you can contact them to take a look.

The key point to remember is not to make too many applications. Footprints don’t look good on your record, so be discerning when you apply.

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