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Beginners' guide to credit reports and ratings

A credit report can help you check, understand and improve a credit rating (also known as a credit score), which may be vital in sorting out your financial future. Find out more...

Key points

  • Understanding how a credit rating may be calculated is the key to finding appropriate financial products
  • In the UK, there's no such thing as a definitive 'credit score'
  • You can obtain a credit check (a report) from a credit reference agency
  • The services and prices of these agencies differ, so compare them
  • Credit ratings can be improved - try our steps to help repair a score

Why worry about credit score?

Having a good credit rating is important as a poor score will impact on your ability to take out financial products such as loans, mortgages, credit cards and current accounts.

While a really bad score may mean you'd struggle to be accepted for such products, a really good rating could make you eligible for the most attractive deals on the market.

Credit reports, bureaus and agencies

A credit report (also known as a credit file) gives you information that's been compiled by a bureau about your current and past financial life.

This will include things such as your name and address, whether you've had problems with debt in the past, if you're on the electoral roll, what you currently owe to lenders and any late/missed payments on credit cards and loans.

The UK's three credit reference bureaus are Equifax, Experian and Callcredit, but there are numerous third-party credit reference agencies in the market who use the data provided by these three bureaus.Credit reports

You may see the three bureaus referred to as 'self-powered agencies', meaning that they are the source of the credit check data.

Credit scores

When deciding whether to lend to you companies will rate you upon factors contained in your credit file, such as credit history, number of credit accounts, how many credit applications you've made, whether you're on the electoral roll and how long you've lived at your address.

But this is only a part of the process, meaning that the credit report can only give you an indication of your likelihood of being accepted for a particular deal.

Did you know...?

  • Under the Data Protection Act, if a lender refuses you credit and scoring was used to help in that decision you're entitled to ask why

This is because each lending company will ask different questions in the application process and will rate on different factors that may or may not be included on your credit report.

There's no such thing as a definitive credit score in the UK.

The lending company will also rate you upon other factors that may be included as questions on their application form, such as your salary and how many children you have, plus on any past dealings you may have had with that particular company.

Note that race, ethnic origin and gender are not considered when calculating your rating.

Comparing and choosing credit check providers

Gocompare.com's credit report comparison service allows you to review the services offered by the whole UK credit report market before committing to a particular one.

Did you know...?

  • Self-powered bureaus are likely to offer more reliable and up-to-date information than third-party agencies

One of your primary considerations may be whether you're signing up for a one-off report or whether you want to monitor your credit file consistently.

Note that, for the reasons mentioned above, it can be advantageous to have an idea of what your credit rating is, and proactive checking can allow customers to correct any errors and track changes.

Prices for credit reports vary, along with the sort of information you receive and the quality of that data.

Some, for example, will offer a credit report but not a score, others may charge ever-increasing fees for additional information requests, some may offer protection against ID theft.

You may find that, as the first handlers of the data, the self-powered bureaus - Equifax, Experian and Callcredit - are able to offer more reliable and up-to-date information than other agencies.Credit cards and calculator

The amount of data these third-party agencies receive and the timeliness of it is likely to depend on the fees that they pay to one of the bureaus.

It may also be worth your while paying attention to customer feedback and reviews of agencies.

Some, for example, will follow best practice in allowing you to easily exit your contract with them, others may put hurdles in your way.

Mistakes on credit files

When you've chosen a provider and received a credit file, check that the details are correct and notify the relevant agency if there are any mistakes - these could impact on your ability to obtain finance.

Did you know...?

  • So-called 'soft searches' can give you an idea of products you're likely to be accepted for before you proceed with a 'hard' search that will leave its mark on your credit files

The credit agency is legally required to review any issues you raise.

Note that any negative information should not be on your record for more than six years.

Apart from that, different types of information will stay on records for differing lengths of time. Credit applications, for example, will stay on your file for a year.

You should also be aware that credit reports only show what credit products you've applied for, not whether the application was successful.

It will show the credit products you're currently using, so if you have a lot of credit applications but no live accounts, lenders may well assume that you've been rejected for credit.

This is one of the reasons why it's important not to apply for too many credit products in a short period of time and, whenever possible, to conduct so-called soft searches before applying for a product.

Midata and credit reports

The government's midata project is designed to help empower consumers' personal finance comparison choices by giving easier access to data held about them.

Credit reports have been named as one of the government's primary target areas as they look to ensure that such data is delivered in a standardised, safe, electronic and portable format. How to improve a credit score

Improving a credit score

As noted, after seeing a credit report you should immediately notify the relevant agency if there are any mistakes on it.

You should also think about things like:

For more information on these and other areas, read our guide on how to improve a credit score.

See also:

By Matt Sanders