Nicholas is co-founder of Economic Street. He is passionate about getting people to become financially independent and economically aware of their personal finances, enabling them to make better financial decisions and avoid becoming entrapped in the cycle of debt.
What a credit report is.
The impacts of your credit report and score.
Where can you find your credit report.
Improving your credit score.
Luke: What is a Credit Report?
Your personal credit report and credit score are key assets in helping with your personal finance from, being accepted for mobile phone contracts to credit cards, loans and mortgages. Think of your credit report as you would your school report. The different financial products are the different subjects for which you're graded. Unlike your school report, your credit report is with you for your entire life; it contains all the positive and negative aspects of your financial history for a period of 6 years.
Having a good credit report and score is the difference between getting accepted for a credit card with an attractive interest rate, or getting accepted with a rate that is beneficial to the financial company, or worse being rejected altogether! Your credit report contains all your personal information such as: address you live or have lived at if you are on the electoral register; financial history such as monthly mobile phone contracts, bank accounts and overdrafts, credit cards and store cards, personal loans (bank loan, car loan, store loans); mortgages, utility bills; CCJ (county court judgements) and defaults on any financial products; your credit search history and your credit score.
Luke: Oooh this is a good way of thinking about it, I never knew that. How is this relevant to me?
Well a poor credit score could mean you may not be able to get simple things such as mobile phone contract, bank overdraft facility or even credit card.
Luke: That’s is quite serious then.
Yeah it is. Your credit score is calculated using information from your credit report, which positively or negatively affects you. Things such as being on the electoral register; having credit cards or mobile phone bills which are paid on time; having outstanding credit defaults or CCJ’s (which remain on your credit report for 7 years); can all positively or negatively affect your credit score.Using a mathematical algorithm, credit reference agencies use all the information to obtain a credit score, which financial institutions use to access your credit application.
Luke: How can I find out about my credit report?
Nicholas: You can check your credit score and report one of the credit reference agencies Experian, Equifax and Noodle.
Luke: So how can I improve my credit score?
Make sure you are on the electoral register.
Set up direct debit payments with lenders.
Use a credit card or rebuild credit card to build up your financial history, ensuring that you pay it every month by setting up a direct debit. One thing I would say is that you do need to be disciplined, otherwise you could find yourself in more debt.
Try to stay out of your overdraft. Your overdraft is another form of borrowing and lenders can see when you are in your overdraft.
Space out credit applications. Repeat applications in a small space of time is not a good sign to lenders.
Use soft search credit searches to check if you will be accepted for credit before applying. Soft searches mean only you see what's on your credit file and financial lenders don’t.
Contest anything you feel is unjust that appears on your report i.e. CCJ (county court judgement issued against you by a creditor).
Luke: What else do I need to know about my credit score?
You don’t have a universal credit rating. Each credit reference agency scores you independently. And there's no such thing as a “black list”. Each lender uses a different reference agency, for example, company A goes to Experian and company B goes to Equifax. You could therefore find yourself being accepted by company A and not accepted by company B.
Your credit score dictates the financial products and rates you will receive. Lenders weigh up how much they will make from you as well as the risk. If lenders see that you pay every month but only pay the minimum balance, they see that you are not a risk but they are also not making money from you.
Student loan from undergraduate degree or PGCE does not affect your credit report and credit score. Key financial products that affect your credit score are:
6.Car and home insurance