FEATURE: The truth about credit reports
Most people are aware of credit reports, but what exactly does yours say about you? Barney McCarthy finds out
Never mind the MI5, someone far less sinister has a file on you. If you have a credit card, a mortgage, a bank account – practically any financial services product, then a credit reference agency is likely to have compiled a credit profile all about you. This is essentially a report of your financial behaviour – the financial products you have, how much you owe and how dutiful you are with meeting agreed repayments. Much like school reports, they range from top of the class, to the theoretical ‘see me after class’, when banks or providers will refuse to lend to you.
The recent high-profile case of Egg withdrawing credit cards from 160,000 of its customers was interesting not only because it was a relatively unusual move, but also because it highlighted the importance of credit reports. The main reason behind Egg’s decision was that it had recently been bought by Citigroup, and the new owners were unhappy with the risk profile of certain Egg customers. But many of those who received a letter telling them their cards were being withdrawn argued that their record of Egg card repayments had been impeccable – they had never missed a payment or exceeded agreed credit limits.
This event served to shed more light on the fact that providers will not just look at your record with them, but will also take other factors into consideration. An Egg spokesperson told Your Money at the time that it is not just internal data that is used, but also “the customer’s pattern of borrowing and propensity to debt”.
All eyes on you
While you may already be aware that the financial services providers you use will have access to some information about your other accounts or loans, you may not have realised quite how close their tabs are on you. Credit reference agency Experian launched ‘Risk Triggers’ in November 2007, a daily alert service that notifies banks and lenders within 24 hours of something adverse appearing on your credit file. These alerts allow banks to avoid bad debt and make savings through initiating loss prevention actions quickly.
James Jones, consumer education manager for Experian, highlights a number of factors that can affect your credit record which you might not even be aware of. “If you are not registered on the electoral roll, some lenders will not continue with your application, so it is important to register with your local authority as soon as you move,” he says. “Other people you live with may also show up on your credit report as they are ‘financially linked’ to you. It is important to check your report regularly to sever links that no longer exist.” Jones also urges caution when applying for credit cards. If you give permission for lenders to process an application, it will show up as a footprint on your credit report. If you are unsuccessful, it will damage your credit report.
For this reason, Jones suggests trying to get an interest rate quotation from a lender before actually choosing the deal that is right for you, helping you avoid a footprint. Another important piece of advice concerns attaching notes to your profile. “If you have had a sudden change in your circumstances, such as being made redundant or getting divorced, and it has affected you credit report, you can add a 200-word explanation to your file,” he says. “Lenders will see this and take it into consideration during your application.”
Scores on the doors
As well as the information they receive from credit scoring agencies, banks will also have an internal scoring system. Based on your behaviour with their products, this will determine what they are prepared to offer you and whether you can have access to additional lending and overdraft facilities. It may even determine access to your accounts online or over the phone – if you have a low rating, you may be asked to go to a branch to discuss matters with an adviser.
The whole process can feel like an examination with results you are not privy to, but you are entitled to know your score. Under the Data Protection Act, banks must reveal any information held about you and an enquiry is known as a ‘subject access request’. You can also access the information that credit reference agencies have on you. There is usually a small charge, but Experian currently offers a free online service if you sign up for a trial. Aside from curiosity, it is important to keep abreast of the information on your credit report to ensure it is all correct.
The hills may well have eyes, but if you are acting responsibly with your money and within the agreed terms, then you have nothing to fear from your credit report.