Credit Rating Guide

Credit repair is an important tool in the battle to becoming debt free – especially if debt consolidation is your preferred option. The first step in ensuring your credit rating is right is to find out what lenders know about you, and to make sure it is accurate.

Our credit rating and repair guide provides:

  • Information about what credit ratings are and how they are calculated
  • Factors that can damage your credit rating
  • Your rights to information on your credit rating
  • Contact details for the main UK credit agencies

This guide may help both those who are in the early stages of debt management, considering a re-mortgage or debt consolidation loan or who have been through bankruptcy or an IVA and want to begin the process of repairing their credit rating.

What is a credit report?

A credit report shows the personal history of any credit you have had. Lenders use this snapshot of information to assess your credit risk picture at a particular point in time.

How are credit scores calculated?

Every credit score is individual and calculated using a mathematical formula that evaluates all the information on your credit report compared to patterns in millions of past credit files. The score then identifies your level of future credit risk.

Factors that affect a credit score

Most credit rating agencies use five main factors to determine your credit score. These are:

  • Your payment history
  • The amount of money owed
  • The length of your credit history
  • The new credit you are applying for
  • The types of credit in use

The factors above are listed in the usual order of importance applied by the agencies. The weighting used will vary between credit rating agencies but not by much.

Why do lenders use credit ratings?

Credit ratings provide a guide to future risk based on credit report data. The higher your score the lower the risk lenders think you will be when offering new credit.

Does everyone have a credit rating?

Anyone who has had credit will have a credit file. For a credit score to be calculated on your credit report, it must contain at least one account that has been active for more than six months and one account that has been updated in the past six months. This ensures that there is enough recent information to compute an accurate score. Your credit score will not be calculated if there is a fraud statement on your credit file.

How often does a credit rating change?

Both your existing creditors and any new companies who are supplying you with credit update your credit file all the time.

Factors that can damage your credit rating

Bad credit history

Your credit history makes up about one third of your credit rating. Any missed and late payments

can reduce your score. County Court Judgments or defaults on your credit report can also have a big negative impact. Negative entries stay on your credit file for six years, but the impact of missed and late payments reduces over time. If you have been making payments on time for at least the last 12 months those negative entries will begin to have less influence on your score.

History of your residence

Your credit rating can be adversely affected if you’ve had many addresses in the last three years or if you have been at your current address for less than six months. This means that tenants are most likely to be hit by this scoring criterion. Your score can be higher if you have been at the same address for more than three years. There may be some impact if you have had two addresses in the last three years, but probably less for a homeowner than a tenant.

Lack of continuity in your employment history

Lenders are looking for someone who has had the same job for a number of years. Having had two employers in three years or changing jobs for more money will not usually cause any problems.

Periods of unemployment between jobs and having had three or more jobs in the last three years can adversely affect your credit rating. A point to note is that it’s better to have been in a new job for a few months before applying for credit as lenders often ask to see recent pay slips.

Multiple credit applications

Your credit file is updated every time you apply for credit. Many applications for credit in a short space of time may be perceived as being from someone desperately trying to obtain credit – in these circumstances your rating could go down.

A single credit application every month or two has little impact on your file. If you have recently been declined for credit, it is advisable not to make any new applications for 6 months.

Recently opened bank account or having no bank account

You can get maximum points if you have been with your bank for a number of years. If you have only recently opened your current account this could reduce your credit rating. Not having a bank or current account is the least favourable option where your credit rating is concerned.

Not being on the electoral register

Not being registered to vote at the address on a credit application, can decrease your credit rating.

Your rights to information on your credit rating

Under the Data Protection Act 1998 you should be told, unless it is already obvious, if the files of a credit reference agency are to be searched when you apply for credit. In most cases you should be told if a credit reference agency receives information about you from a lender.

They should let you know who they are and how your information will be used and disclosed – normally the lender will tell you all of these things when you apply for credit. The name and address of the agency which has been used will not always be on the application form but it will be made available to you free of charge if you ask. You can write to the lender or you may be given a phone number.

If you do not want to contact the lender, you can apply directly to the credit reference agencies for a copy of your credit reference file.

Your Right to See Your Credit File

You can ask to see the information credit reference agencies have about you at any time. You do not have to be refused credit first.

You have the right at any time to ask them in writing (or by using their online services) for a copy of your file. This is called a Statutory Credit Report and there will be a £2 administration fee when you request it. It is a good idea to keep copies of any letters you write and to have a proof of posting or email confirmations if you have ordered your report online. These may be useful later if there is a disagreement about your file.

The agency you contact may ask for more details to help them find all the information they hold about you and before sending the file out, to check that you are who you say you are. Otherwise they must send you your file within 7 working days from the receipt of your letter or tell you that they hold no information about you. You can only ask for information about yourself.

Self-employed or in partnership

You are also entitled to information if you run a business as a sole trader. You can get this information at the same time as you request any data held about you as a private individual – just give your businesses’ name and address when you write. Under the Data Protection Act you will be entitled to any separate information that may be held about you in your business capacity.

If you are in a business partnership you can also ask for a copy of your file. But, since you are entitled to this information under the Consumer Credit Act, the Office of Fair Trading regulates your right to this information. Requests from partnerships should be sent to the Director General of Fair Trading.

Limited companies do not have any rights under the Data Protection Act 1998 or the Consumer Credit Act 1974.

Correcting errors on your credit file

You can require a credit reference agency to put a Notice of Correction on your file explaining why you think information on your file is misleading or why you got into debt. This notice is limited to 200 words and can be rejected if it contains information which is deemed by the credit reference agency to be defamatory, frivolous or unsuitable for publication due to some other reason. Any Notice of Correction which refers to a third party by name is also likely to be rejected.

Approved Notices of Correction can be seen by anyone reading y the file. Most lenders use computers to make credit decisions but if there is a Notice of Correction on your file, your application may be referred to a real person, who will decide whether your credit application is approved.

How to contact credit reference agencies

Credit reference agencies have made it easier for you to apply for your Statutory Credit Report using their online services. Below are links to the three main credit reference agency websites:

Credit reference agency Website

The effect of an IVA on credit ratings

In the early stages of applying for an IVA, whilst your proposal is with creditors awaiting approval, we usually advise that you continue to make repayments – even if you are unable to afford the monthly minimum payment. Failure to make even a token payment can seriously affect your credit rating.

Once an IVA proposal has been accepted, your creditors will notify the credit reference agencies so that you are now in an IVA. In most standard cases this information will stay on your credit file for 6 years from the start of your IVA.

When you have successfully completed your IVA, you will be free from debt, but it can take some time before your credit record reflects this.

We hope you have found our credit rating guide useful. If you want some help with your debts, speak to us today on 0800 019 2095 or complete our contact form and we’ll call you back.

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Credit Rating Guide

Updated on 2016-09-29T01:18:39+01:00, by Kristian Stock.

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