Understanding your credit score - What's a credit report?

Common misconceptions
Page 2 - Reading your report

If there's one area of personal finance that's far too often overlooked it's your credit report or credit reference. Whilst it usually forms the basis of how much you can borrow and at what rate few people are really aware of how to read their credit report and how a lender will interpret it.

If you have had credit of one form or another it will almost certainly have been recorded and information shared with the main credit reference agencies such as Equifax & Experian.

When you apply for credit your application is usually cross checked against a report from these agencies which provides them with information about your outstanding credit balances, credit available, payment history and various other pieces of information such as whether the listed address is one where you are registered to vote.

This will be used in conjunction with demographic and statistical data to give the application a credit score, which is a method for predicting credit risk based on past lending experience.

Common misconceptions

There are many misconceptions about credit scoring and credit reports, see below for some of the most common;

• Credit Blacklisting - There's no such thing as a credit blacklisting, different lenders accept different levels of risk which they assess from your report, if you keep struggling to arrange credit ask us why and we'll help you find out.
• My house is blacklisted - Many people believe it's down to a former occupant of their property. Whilst the house you live at is used to check your identity you shouldn't benefit from moving house, check the financial connections section of your report for errors but this is largely a myth.
• It's someone else in my house - Your credit score should never be affected by an individual you have no financial connection to (i.e. a shared account such as a business partner or spouse). You can check the financial connections section of your report but again this is a common myth.
• Bankruptcy lasts for one year - Whilst it's true that you could be a discharged bankrupt after one year this could continue to affect your credit score a lot longer.
• It's based on income - Your credit report is a reflection of how you handle your credit related finances and while a lender will look at your income its more about how you manage it.

Financial Connections

One area of a credit report that may give rise to some of the myths listed above is financial connections. If you have held a joint finance account with anyone in the past you will likely have a financial connection to that person. If they have bad credit history and you do not, and you have struggled to get credit then it may be linked to a financial connection. If you are no longer financially connected to someone for example an ex partner then you can request that the credit reference agency removes the link to that person.