Page last updated at 11:01 GMT, Friday, 11 January 2008

Your credit rating explained

A credit card
It is important to check that the data lenders rely on is accurate
No-one has an automatic right to credit.

Individual lenders use their own criteria when deciding whether or not to lend you money, but they rely heavily on data supplied by credit reference agencies.

BBC News explains how they work, the information they hold, and how you can check and challenge your credit file.

What is a credit reference agency?

Credit reference agencies are commercial companies which compile information from a number of different sources, including the electoral roll, county court judgements and financial institutions.

They sell this information to lenders and other service providers in the form of credit reports which help them to decide whether to grant an application for a loan, credit card, or provide another financial product.

The three credit reference agencies operating in the UK are Experian, Equifax and Call Credit.

What information do they have?

Agencies hold personal information taken from previous credit applications. This includes your name, date of birth, current and recent addresses.

Name and date of birth
The electoral register
Credit payment history
County Court judgements
Bankruptcy and administration orders
House repossessions
The main part of your credit report is your credit history. This lists your credit accounts, the date they were opened, the credit limit or loan amount, and whether you have missed any payments.

Account details stay on your report for six years after you settle a loan or close a credit card. However a credit card which you no longer use but have not formally closed will remain permanently.

Agencies also record a credit search every time your credit report is looked at, for instance when you apply for a loan or buy something with interest free credit. These searches stay on your credit report for up to two years.

Your file also records the name of your current account provider, but will not show further details of your account unless they are relevant for the purposes of granting further credit - for instance if you are in unauthorised overdraft.

Also included is public record information such as county court judgments, house repossessions and bankruptcies. Such information usually stays on your credit report for six years.

Credit reports do not include information about savings accounts or personal information such as religion, political affiliation, medical history, or criminal records.

The information on your credit report is used to generate a credit score, but this score is not part of the report itself.

What are lenders looking for?

As well as asking you for details of your income, employment status and assets, lenders use information from credit reference agencies to assess how well you have handled credit in the past, and therefore how much of a risk they are taking by lending money to you.

Experian: 0844 481 8000 or
Equifax: 0870 010 0583 or
Callcredit: 0870 060 1414 or
The agencies check your name and address against the electoral roll, so you may have problems if you are not on it.

You may also struggle to borrow money if you have never taken out credit before, or if you already have what the lender believes to be too many loans or credit cards.

There is no "blacklist" of people who will not be given credit - each lender analyses the information according to its own rules, so you may be turned down by one company but accepted by another.

However, beware of making multiple applications, because many lenders take a negative view of a large number of credit searches in a short period.

What can you do if you are refused credit?

No lender has to provide credit to you. It can turn you down altogether, offer to lend less than you requested, or charge a higher rate of interest.

However, you can ask it to reconsider if it made its decision just using a computerised credit scoring system or if you believe you have further relevant information.

The lender does not have to provide a detailed explanation of its actions, but it must tell you the name of the credit reference agency which supplied information about you.

Checking your file

Even if you have not been turned down for credit, it is a good idea to check your file regularly - perhaps once a year - to ensure the information held is correct.

Lenders use all three agencies so you need to contact each of them.

Under the Data Protection Act, credit reference agencies must provide you with a "Statutory Credit Report" for a fixed fee of 2. You need to provide your full name, date of birth, current address and former addresses for the previous six years.

The statutory report contains your basic credit file and should be posted to you within seven working days although agencies can ask for further proof of your identity before supplying the information.

Each agency will provide more detailed information - including in some cases instant, continuing and online access to your file - for a higher fee.

Correcting any mistakes

You have the right to dispute inaccurate information on your credit file, and to have errors corrected. But you cannot get information removed just because you find it embarrassing.

If there is negative information on your file about people in your family with whom you have no financial connection, you can ask the agencies to "disassociate" you from them.

If you want to dispute the accuracy of something else on your file, first contact the relevant creditor. If the information is wrong, it must update its internal records and notify the credit reference agencies it deals with, usually within 28 days.

Information Commissioner's Office: 08456 30 60 60 or
Credit Industry Fraud Avoidance Scheme (Cifas): 0870 010 2091 or
Financial Services Authority Consumer Help: 0845 606 1234 or
UK Credit Repair:

If you cannot resolve the matter with the creditor, you should ask the credit reference agency itself to review your file. Remember you may need to do this with each agency.

If you are still not satisfied you have the right to attach a 200 word "Notice of Correction" to your file, setting out the nature of your disagreement. This becomes part of your credit file, and is seen each time it is accessed.

If the credit reference agency does not reply within 28 days, or refuses to process your Notice, you can ask the Office of the Information Commissioner to investigate whether it has breached the terms of the Data Protection Act.

What if there is evidence of fraud?

Contact all three credit reference agencies immediately. If you have not already requested your credit file from each of them, do so now. Explain the situation and ask that an alert be placed in your file. The lender should be able to advise whether you should notify the police.

You may also wish to consider paying for "protective registration". This is a service provided by Equifax on behalf of the Credit Industry Fraud Avoidance Scheme or CIFAS.

It places a warning against your address which alerts lenders carrying out a search to request further information such as proof of identification before granting credit.

Credit repair firms

There are a number of firms that promise to "repair" your credit for a fee, but the Financial Services Authority (FSA) says consumers should be very wary about using their services.

Under the Data Protection Act, credit reference agencies are obliged to correct mistakes, or add a Notice of Correction to your file without charge.

In addition, debt advice charities such as National Debtline and the Consumer Credit Counselling Service can offer free advice about dealing with debts, county court judgements and borrowing money with an imperfect credit history.

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