Improving your credit rating

Who Keeps Credit Scores?

In the UK there are three main Credit Reference Agencies which get their information from lenders with the permission of the borrowers who, when they sign up to a loan agreement, consent to this type of information being disclosed. Of course, if consent is withheld, the lender may not pass on details of the borrower’s agreement. Passing on such information without consent is a breach of the Data Protection Act 1998. The agencies also obtain information from County Court Judgments and from the electoral rolls. Lenders pay for credit information because it can help them to decide whether to lend money to potential borrowers by providing information regarding the borrower’s previous repayment history. This information is referred to as the borrower’s credit report or credit file. The lender uses this information and weighs up the mainly financial information so obtained with other factors such as the borrower’s age and occupation, and whether he or she is a homeowner. This is information which the borrower usually provides on the credit application. Lenders often assess this information and the information on the credit report using a process known as credit scoring. They may also take into account whether the borrower is on the electoral register. The lender may allocate points for each piece of information it has and then add them up to give the borrower’s total credit score. Different lenders may apply different weightings to the various factors used in compiling the borrower’s credit score when making lending decisions. Each lender has its own pass mark and if the borrower does not achieve that score their credit application may be refused.

How to find out why you were refused credit

Woman with debts worrying. Financial problems.Ask the lender why credit was refused. Generally lenders will provide broad information about any credit scoring method they may have used and the factors that they have taken into account in their scoring system, including the use of information from the borrower’s credit report. If the scoring system used was computerized, the borrower can ask for a manual review, providing any further extra information needed. If the lender used information from a Credit Reference Agency, the borrower should be informed as to which agency was used. For a small fee they can, if they so wish, obtain for themselves a copy of their credit report. If any of the information in the report is incorrect, they can ask the agency to correct or remove the error and so improve their credit score.

Beware of shopping around for credit as it may affect your credit score

Every time you make an actual application for credit a ‘search’ will show up on your credit report. If lots of searches show up on your report it can create the impression that you are desperately seeking credit from numerous lenders thus implying that you have had multiple refusals. Experian, Equifax and Callcredit keep records of such searches on their files for between one and two years. Of course if and when a lender does agree to offer you credit, make sure to check out the interest rates and other terms being quoted since you may be charged penal interest rates if you already have a poor credit rating.

How long do the Credit Reference Agencies keep your information on file?

They normally keep the information on your report for six years from the date of the initial default.

How can errors on your credit file be corrected?

You can ask the credit reference agency to put a notice on your report of up to two hundred words explaining why you got into debt or why you think that information on your report is misleading. You may want to explain your financial circumstances at the time and why your situation is now different. This notice will then be seen by anyone reading your report such as a lender making a search of your credit report when you apply for credit. Most credit decisions are made automatically i.e. by a computer. If there is a notice of correction on your report, your application must be referred for a manual decision so that a person will decide whether or not you can get credit and the decision will not be made by a computer.

Can your credit rating be affected by that of other people?

Credit Reference Agencies should not include information about other people in your credit report even if they happen to live with you and even if you share a surname, unless a financial connection has been created between you and the other party. This means that other people’s credit details should not affect your credit rating. From November 2004your credit report should only include: financial information about you; the name of anyone you have a financial connection with at your address but not any financial information about that person; andthe date and source of the financial connection. This means that your financial details will no longer appear on anyone else’s credit report unless you have a financial connection with them. If you have a financial connection with someone, lenders will be able to see more information about that person on your credit report than you can. Your report will only say that you are linked to that person. A lender looking at your report will see all the normal information about that person’s credit history, such as what type of credit they have and if they are up to date with their payments. Your credit report will also continue to show you who has accessed your details and when this happened.

What does ‘having a financial connection’ mean?

You will be treated as having a financial connection to someone else where a lender tells the Credit Reference Agency that you have made an application for credit in joint names or that a bank account or other credit facility has been provided in joint names or if you tell the credit reference agency that you are financially linked to someone else. This will continue until you file a notice of disassociation to end the financial connection between you and the other party. Credit reports will also include a ‘linked addresses’ section with details of any previous addresses that you provide when applying for a copy of your report and other addresses you have been connected to. There may be information on your report about people with whom you have no financial connection, or who no longer share a financial connection with you, such as a former partner. You can write to the Credit Reference Agency to ‘disassociate’ yourself from them explaining your reasons. You will need to fill in a form giving details about the people you want removed from your report. You only need to contact one of the Credit Reference Agencies, as they will share the disassociation with the other agencies. If the agency refuses to accept your notice you can ask the Information Commission for help.

Can you complain about how a Credit Reference Agency is treating you?

You have the right to complain to the Financial Ombudsman Service about how a credit reference agency has dealt with your credit file. You will have to follow the complaints procedure of the Credit Reference Agency first and you can only complain about events that happened from April 2007 onwards. You can also complain to the Information Commission under the Data Protection Act 1998. They can look at issues such as why a lender or Credit Reference Agency has not corrected information on your file, or where a Credit Reference Agency has refused to add a notice of correction.

What are credit repair companies?

Credit repair companies are companies that offer to clear your credit records with Credit Reference Agencies to allow you to apply for more credit. However you may have to pay a fee to the company for something that you can do yourself. Credit repair companies will often send you an information pack telling you how to get a copy of your credit report and how to clear county court judgments. You need to be very careful before paying a fee to a commercial company which suggests that it can remove judgments for you. If you apply to the county court to set aside a judgment and you do not have a real reason to do so then you could be in trouble with the court. From October 2008,credit repair companies must have a consumer credit licence from the Office of Fair Trading. Check if the credit repair company has a licence before using their services. If you have a complaint about something a credit repair company has done from October 2008 onwards, you can ask the Financial Ombudsman Service for help. You can also check out a website set up by representatives from trading standards, the credit industry and credit reference agencies which give more information on credit repair companies and what to watch out for.