Having a poor credit rating can cause serious problems, leaving you unable to rent a property, secure a mortgage or take out a loan.
And having no credit history at all can be equally damaging as you may be refused financial products because you are unable to demonstrate an ability to pay back debt.
Credit card companies, for example, only have to offer their best rates to 51% of applicants – and you can bet those successful have the brightest and shiniest credit records. So if you’re stuck with a poor rating, you may face paying hefty amounts in interest, piling on more debt problems.
Considering that your ‘financial CV’ can impact on your life in numerous ways, how do you go about giving it a health check? And what can you do if you find it’s tarnished in any way?
How to check your credit rating
There are several credit rating websites that make it simple to monitor your financial profile, but ensure you pick a reputable one. Each site uses a different point scoring system but the classification is the same – so if you have a good credit score with one, you should have the same if you checked with another. Consumers now have a legal right to access their credit report for free from any credit reference agency, some of which also offer a free credit score once a month. The three credit reference agencies are Experian, Equifax and Callcredit.
ClearScore (Clearscore.com), which operates in partnership with Equifax, offers free access for consumers to their credit score and report, along with tips on how to manage and improve it.
The ClearScore website is simple to use, and you don’t need to give any account details. Instead, you state your name, address and date of birth, and it will list the financial products you have, and give you a score out of 700 within a few minutes (the higher the number, the better). This will tell you whether you’re on good ground or there’s room for improvement. All the credit ratings companies have slightly different scoring systems, so while you can’t really compare one with another, the benefit of any scoring system is that you can monitor it over time so you can check if there has been any change and take action if it gets worse.
ClearScore makes money by presenting consumers with products matched to their credit profile but guarantees that privacy is protected as data won’t be sold.
Noddle.co.uk, part of the Callcredit Information Group, also offers free credit reports. Debit or credit card details are required for sign up for ID verification but these won’t be used unless you subscribe to an additional service.
While free, the company markets optional add-ons. These include Noddle Improve, offering advice on boosting your credit score, and Noddle Web Watch, which searches the internet to find if your personal details are being sold fraudulently.
Other options include Experian (Experian.co.uk) and Equifax (Equifax.co.uk). Experian offers a free account with a credit score updated every 30 days. You can also sign up to their premium service CreditExpert which is offered as a 30-day free trial and £14.99 a month thereafter. This service offers a daily credit score, alerts, fraud support and advice on improving your score.
Equifax has a 30-day free trial before it starts charging £7.95 a month. Meanwhile, along with Callcredit (Callcreditstatreport.co.uk), they are all legally required to offer one-off access to credit reports for free. If you do sign up for one of the free trials, then you will be required to enter payment details so remember to cancel it within a month of signing up or else incur a regular monthly charge.
Whichever service you use, once you’ve entered the necessary details on a credit reference site, you’ll get a score. This will give you an idea of whether you need to be concerned about it. You’ll be shown all credit agreements you’ve had within the past six years, whether settled or active.
Credit reports also flag any red marks on your file, from missed payments, say, to County Court Judgments (CCJs) in the past six years. Bankruptcy orders also appear on your report for six years even if you are discharged. If you settle a CCJ, it’ll still be shown but as settled.
If you spot a mistake
If there is an error, contact the lender and ask for it to be corrected. If you don’t know which provider the problem lies with, contact the credit reference agency. A company could have listed you as in default by mistake. Or it could prove more serious if a fraudster is taking out credit contracts in your name.
James Jones, head of consumer affairs at Experian, says: “A ‘notice of correction’ can be added to a file to explain the reasons behind a period of financial difficulty – and this is seen by any lender using the data in the future.” A correction should appear within 28 days.
You might be surprised to find your score lower than expected, particularly if you always repay on time and are particularly financially responsible. However, Justin Basini, co-founder of ClearScore, says: “Your score is formed using many different factors. For instance, having many credit cards open that are never used could negatively impact on your score.
“It may sound counter-intuitive but if you have very little or no credit, your score will often be lower. This is because lenders are looking for evidence that you can pay back your credit responsibly.”
Beware how sharing accounts with others can impact your credit rating. Research by uSwitch.com in 2015 revealed that more than two million people suffered financially as the result of an ex-partner running up a debt from shared accounts – averaging £457. And more than two-thirds of those who have shared a financial product with an ex said the account was still open five years after they broke up.
If you do break up with your partner, close all shared accounts and contact each of the three main credit agencies to remove any financial links between you and your ex.