Most households have never checked their credit ratings
Most households have never checked their own credit report, research by consumer group Which? suggests. Consumers can be refused loans or credit on account of their credit score.
They have been urged to regularly check what their rating is and work on improving it. In a Which? survey of more than a thousand households, 53% said they had never checked their credit score or obtained a credit report.
Credit reference firms including Experian, Equifax and Noddle said the Which? survey highlighted some of the misconceptions surrounding credit reports.
The survey found that 77% of those polled wrongly believed that banks had a uniform credit blacklist which prevented consumers from getting loans anywhere.
And 60% had the erroneous view that credit reference agencies made decisions on whether banks provided credit or not. The report underlines the importance of credit scores and reports and the role they play in many people’s financial lives.
A credit score is a measure of credit worthiness in the eyes of the banks and building societies. The higher the score, the more likely people are to get a loan, credit card, mortgage, or overdraft. A person can get a decent credit score by showing they have a history of paying off debts in full and on time.
They must also have shown that they have taken out some sort of credit – if they have never borrowed any money or have paid only by cash, their score will be much lower.
But even though the banks will prefer if people have a great credit record, it’s no guarantee that they will get that mortgage or credit card.
Financial institutions must also take a subjective view of credit worthiness. They ultimately decide – not the credit reference agencies. What many people don’t know is the role played by these little known credit institutions in whether they get that loan or not.
Companies such as Experian, Equifax and Noddle gather reams of data about nearly every adult in the country. Every time someone makes a payment or even apply for credit, these agencies take a note.
And if people miss or are late in making a payment for gas, electricity or mobile phone, the energy company or mobile operator sends a note of that automatically to the credit reference companies.
So a huge body of very private data is gathered about a person’s financial life by companies with whom they have no contract or any direct links.
And this credit history goes towards giving a credit score – usually between 0 and 999 – depending on the company.
When someone applies for credit, the bank or credit card company consult the likes of Experian, Equifax and Noddle, but the decision will not rest solely on that credit rating.
Normally the system works well, and those who should be given credit, get it – while those who have been more patchy when it comes to repaying debts tend to struggle.
“Understanding how to manage credit well needs to become an integral part of financial planning so we welcome these efforts to address some of the common misconceptions we still see every day,” said James Jones from Experian.
“We have been committed to helping demystify credit scoring for many years and it is encouraging that Which?’s findings suggest an improvement from a couple of years ago, as more and more people are taking the time to review and improve their credit report and score.”
However, it is not unusual to get errors in a credit report. Late payments for long closed mobile phone accounts mistakenly resurface.
Failing to show up on the electoral register can also have a detrimental impact on the score.
Also fraud may have driven down a credit score. Fraudsters may have cloned a credit or debit card and run up huge bills. That will seriously affect a credit score.
Which? urges people to write to a company – mobile phone operators, utility companies or the electoral register, and get them to correct any mistakes.
The message is simple: people should know their credit score and not ignore any discrepancies because it may affect the next time they want to move house or buy a car.