What does your credit history include?
Your credit history lists all the borrowing you’ve had over the past six years, together with your payment history. Lenders normally check your report when you apply for a personal loan (or any other form of finance). They use this information to see if you’re a responsible borrower and how much of a risk it’d be to lend to you. They can see if:
- you’ve missed any payments
- made any recent credit applications
- had defaults and CCJs registered against you
Your credit history also includes your current account, your address, and anybody that is financially linked to you (e.g. via a joint account).
When it comes to assessing your credit application, each lender uses their own criteria. So, you could be turned down by one and accepted by another. However, the more responsible you are with money, the lower risk you’ll appear to lenders. If you have a good credit history, you should stand a better chance of being accepted - and with lower interest rates.
On top of your credit history, lenders will also consider other factors like your application form and your affordability – as well as any past information they might have about you (if you’re an existing customer of theirs).
What factors affect your credit history?
There are several factors that may affect your credit history, including:
1. Missing payments
Missing payments can have a negative effect on your credit history and your attractiveness to lenders. A missed payment will show on your credit report for six years from the date of registration.
The severity of the impact will depend on things like:
- how much time has passed since you missed a payment
- how many payments you missed
- if you’ve had a default or CCJ registered against you
- if you’ve maintained your payments recently
For example, if you only missed one payment a few years ago, this would have less impact than a recent run of missed payments. Lenders tend to focus more on your recent credit history. So, if you’ve maintained your bill repayments recently, then this should work in your favour.
2. Not being on the electoral roll
Your political viewpoint isn’t important to lenders, but being on the electoral roll is. Lenders use this information to confirm your identity and check if you have a stable address. So, if you’ve not done so already, consider registering to vote via the government’s website – it only takes five minutes to sign up.
3. Having unused credit accounts
Lenders want to know that you can afford to pay off what you borrow. As part of their affordability checks, they’ll look at how much credit you already have available to you. If you have quite a lot, it could show as a red flag to them. This is because there’s the potential for you to max out your cards and get into financial difficullty, which would make further credit unaffordable. So, on this basis, they may reject your application or offer you a lower credit limit.
Having said that, there are instances when keeping a credit card open could boost your creditworthiness. For all the details, read our guide on closing an unused credit card.
4. Making lots of credit applications
It’s best not to make lots of applications back-to-back. Every time you apply for credit it will show up on your credit report for lenders to see. Making lots of credit applications in a short period of time could make you look desperate for cash.
5. Not having a current account
Lenders will want to see that you’ve got an active current account with a regular income. In most cases, they’ll expect you to set up a direct debit on your current account to make your credit repayments.
6. Relying too much on an overdraft
Try not to rely too heavily on your overdraft. Frequently dipping into your overdraft could give lenders the impression that you’re struggling with your finances. They’ll want to know that you’ll be able to cope with extra credit on top of your existing outgoings.
7. Not having any credit
If you’ve never borrowed money before, your credit report won’t showcase that you can manage credit responsibly. It may sound strange, but a lender can’t view you as a responsible borrower until you actually borrow money and pay it back on time.
You may want to take out a form of credit to demonstrate to lenders that you’re able to manage credit responsibly – by paying it back on time, every time.
For example, you could make small payments (for things like petrol) on a credit card each month, then pay it off in full before your next statement. That way, you won’t be charged any interest and you’ll build up a good credit history.
It can feel a bit like a chicken and egg situation, but we’ve got some tips to help. Read on to find out how you can fix a thin credit history.
8. Not having a stable address
Lenders like to see signs of stability, so if you change your address a lot then this could work against you. We understand that life can be unpredictable but having a stable address can improve your creditworthiness and help you avoid any hiccups with lenders’ fraud checks.
How will your credit history impact the lender’s decision?
As one of the main points of reference for a lender, your credit history can have a big impact on whether they’ll be willing to offer you credit.
Some lenders want to lend to customers that have never had problems with credit in the past. They’re looking for people whose credit history shows that all payments have been made on time and in full. These mainstream lenders tend to offer the most competitive interest rates.
There are other lenders that are happy to lend to borrowers even if their credit history is less-than-perfect. These tend to be more specialist lenders and they often charge more, reflecting the higher risk involved from their perspective.
How do you correct mistakes on your credit report?
The first step is to check your credit report. You can do this for free using the three main credit reference agencies in the UK: Experian, Equifax and TransUnion, or use our partner, CredAbility. You can do this as many times as you like with no impact to your credit score.
Once you’ve got your credit report in front of you, read through it carefully to make sure that all your information is correct and up to date. Make sure your surname and address are noted correctly (for example, check it shows your new name if you’ve recently got married).
If you find something on your credit report that shouldn’t be there (like a missed payment that you have evidence of paying, for example) contact the relevant agency and ask them to correct it for you.
If you’ve had joint finances with someone in the past, you can ask to get them removed from your credit report – as long as the joint debt is paid in full and closed. All you need to do is contact the agency that holds your report and request that they apply a ‘notice of disassociation’ to your report. Doing so will stop the other person’s credit history from affecting yours.
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Intelligent Lending Ltd is a credit broker working with a panel of lenders.