Knowledge is power, so clue yourself up on what lenders want and increase your chances of securing credit in the future.
If you’re soon to be in the market for a new line of credit, whether that be a credit card, loan or otherwise, you’ve probably seen the term ‘credit report’ bandied about more times than you can shake a stick at.
But what’s it all about, and why’s it so important to lenders?
Your credit report is a record of information about your history of managing money, and it’s any lender’s first port of call in deciding whether or not to give you the cash you’re after.
To help clear up any confusion, we’ve broken it down into 10 things lenders will look for on your credit report, and what you can do to give it a boost.
1. What you owe
First and foremost lenders want to know how much outstanding credit you’ve got in your name. Why? To see if you’re a) good at managing your finances, and b) up to your eyeballs in current debt, and that’s where credit utilisation ratios come into play.
Credit utilisation ratio - it might sound complicated, but all it really shows is how much of the credit available to you you’re actually using. So, if your credit card limit’s £1000 and your current balance is £500, your ratio is 50%.
The ideal utilisation ratio is 30%, and with the credit reference agency Experian you could boost your credit score by 90 points if you keep your balance at 30% or below.
Why do lenders care about how much you currently owe? Because they want to be assured if they lend you money you’ll be able to pay it back, and if you’ve already got a substantial amount of credit in your name, they might not be confident you can.
2. Repayment history
By looking at your repayment habits in the past, lenders try to work out whether you’re a safe bet or not, now and in the future.
If you’ve always kept up to date with your repayments every month on time and in full this will likely boost your chances of being accepted for future lines of credit. On the other hand, if you’ve struggled to keep up with repayments it might be a red flag to lenders - after all, it wouldn’t be very good business to lend out money if you thought you wouldn’t get it back.
To give you an example of how your repayment history could impact your report, a credit score with Experian would be docked 130 points for a missed payment.
3. Addresses past and present
It might not seem particularly relevant to you, but lenders look at your current address as well as where you’ve lived for the last six years to match you to your credit information.
While your address itself doesn’t directly affect your score (whether you live in Buckingham Palace or a tent in your parents garden), regularly moving address could represent instability to lenders which doesn’t bode well, as reliability’s the name of the game.
One surefire way to earn a few extra brownie points is by registering to vote. Once you’ve done so, your name will be on the electoral roll and this is recorded in your report. It’s the way a lot of lenders cross-check your name and address to prevent fraud and could bag you as many as 50 points.
4. Financial ties
Your credit report lists anyone that you’re financially connected to, whether that be via a mortgage, a joint bank account or otherwise.
Being linked to someone with a bad credit record could impact you too, so if this is the case it’s a good idea to separate yourself financially where possible before applying.
Tip: be vigilant - if you no longer share any financial accounts with someone, you can ask for them to be disassociated from you financially.
5. Application history
Lenders will see on your credit report how often you’ve applied for a line of credit in the past. If all it shows is a credit card application here and a car insurance application there it shouldn’t affect their decision, but if you’ve been making repeated applications for credit, particularly over a short period of time, this could be a red flag.
Why? Because, in a nutshell, it looks like you’re desperate. They’ll wonder why you’ve been trying so hard to get your hands on credit and also why you’ve been unsuccessful so far.
Each time you complete an application for credit this constitutes a ‘hard search’ on your report, and that’s what lenders will see. To avoid this, make use of the ‘soft search’ facilities some lenders offer, which let you know whether you’ll be accepted for credit without impacting your score.
If you’ve been the victim of credit fraud, through the UK's Fraud Prevention Service CIFAS register, this will show on your report for lenders to see.
In the event fraud’s occurred, as if you’ve not been through enough already, this could negatively affect your credit score, so it’s important you keep a close eye on your report.
If you see anything that doesn’t appear correct on your credit report, ensure you raise the concern with the lender in question.
Tip: Credit reference agencies including Equifax and Experian offer support to victims of fraud, so ask them to help you investigate any suspicious signs on your account and put them right.
7. Court and public records
Lenders will be looking on your report to see if you’ve had an IVA (individual voluntary arrangement), any CCJs (county court judgements) or been declared bankrupt.
We might be stating the obvious but any of the above will have a serious impact on your credit score and will flash a big warning light to lenders that you’ve struggled with money management in the past.
8. New accounts
Every time you open a new account it’s recorded on your report. Open several over a short period of time and this won’t look great to potential lenders.
They’ll be wondering a) why you need so much credit, and b) what will happen if you max out all the lines of credit available to you. If you’ve got a couple of credit cards, store cards, and an overdraft for example, will you be able to pay back the loan you’re applying for if you decide to clear them all out?
Tip: If you know you’re going to be applying for credit soon, don’t be tempted by incentives for new customers. Resist the urge to open any new accounts in the run-up to boost your chances of being accepted.
9. Length of credit history
Having a long and stable track record of being able to manage your finances is something lenders like to see. According to Investopedia, the length of your credit history makes up 15% of your credit score.
We realise you can’t go back in time and open lines of credit, but it’s worth knowing because you can use it to your advantage in the future. For example, if you’re hoping to secure a loan to make some home improvements in the future but you’re worried about the strength of your report, you could consider pushing it back while you lengthen your credit history.
10. Types of credit used
You know the old saying, variety is the spice of life? Well, when it comes to your credit report it certainly rings true, and from a lender’s perspective variety is a big bonus.
Lenders like to see that any potential customer has experience using different types of credit (i.e. loan, credit card, an overdraft) in a stable and reliable way, so they’ll be looking at your report for a diversity of borrowing, and it might boost your likelihood of acceptance if you can show it.
Tip: This is one you either have or you don’t, remember what we said about opening lots of new accounts in a short space of time? Don’t be tempted to do so in order to increase your credit variety, or you could end up making things worse.
If you’re looking for ways to improve your credit score for good, you can find out 45 ways to boost your score - including actions you can take right away and long term future plans.
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