What are Credit Reports?
A credit report or credit file refers to the information held on an individual by the credit reference agencies (CRAs). It is an accumulation of information about how a borrower pays their bills and repays loans, how much credit they have available, what their monthly debts are, and other types of information that can help a potential lender decide whether the borrower is a good credit risk or a bad credit risk.
The report itself does not indicate the credit risk status of the borrower - it provides lenders with the data they need to make the decision themselves. CRAs collect this information from merchants, lenders, landlords, etc., and then sell the report to businesses so they can evaluate an application for credit. Lenders make their decisions based on different criteria, so having all of the information helps in ensuring that they are make the right decision.
Sources of information for credit reports
The agencies create credit reports from a variety of sources. One source is information held in the public domain, such as the electoral roll. Other sources are information provided by banks, building societies and finance companies. This information relates to present and past loans held with them.
Lenders purchase credit reports from CRAs. They use them in combination with a system of credit scoring, to decide whether or not to authorise a loan. So it is the lender that makes the final decision to loan money, and not the CRAs.
There could be information in the credit report about other individuals in addition to the primary borrower. These individuals will have had some significant financial link with the primary borrower, such as a joint account. Once such a financial link has ended it is advisable to request a “disassociation” from the person in question. This is worth doing if the other person has, or is likely to develop a poor credit history. It is also advisable to check the credit report for additional individuals that have been included by mistake.
Information stays on a credit report for six years after a loan has been paid off. A lender should inform a borrower if it refuses credit because of information held by a CRA.
You can check your credit report by contacting the credit reference agencies. If you believe any information shown on your file is wrong, you should inform the lender and dispute it with the credit reference agency.
What data is in a credit report?
Electoral roll
Lenders use the electoral roll to check the identity of the people applying for credit and to make sure the addresses provided on application forms are correct.
The electoral roll is published each December using information supplied to local authorities by the public. CRAs such as Experian update their records annually. Individuals applying for credit are advised to register to vote, if they have not already done so.
Personal identifying information
This includes an individual’s name, address (current and previous), social security number, telephone number, birth date, current and previous employers. A wife or partner’s name may be included as well.
Credit history
This section includes an individual’s bill-paying history with banks, retail stores, finance companies, mortgage companies, and others lenders that have granted credit. It includes information about each account an individual has, such as when it was opened, what type of account it is, how much credit it includes (or the amount of the loan), the value of monthly re-payments, etc. If an account has been closed, or the loan has been paid off, then that information is recorded as well. If there were missed or late payments, they will also be recorded.
Report inquiries
This section includes all credit granters who have received a copy of the credit report. It also includes any other parties who were authorised to view it. In addition, lists of companies that have received the individual’s name and address in order to offer credit are included. These companies do not actually see the report, but get the names of individuals that meet their criteria for an offer of credit, insurance or other products.
Dispute statements
The report may also include any statements made that dispute information on the credit report. Most CRAs allow both the borrower and the creditor to make statements that report what happened if there has been a dispute about something on the report.
Court judgments
Court judgments are held on credit reports for six years from the date of the judgment. CRAs gets this information from Registry Trust, an independent organisation set up by the Lord Chancellor’s Department. Judgments that are paid within one month are removed from credit records as long as a “Certificate of Satisfaction” has been issued by the court. Judgments paid after periods exceeding one month are kept on file, but marked as “Satisfied” once a Certificate has been issued by the court.
If a loan applicant has been declared bankrupt, CRAs will obtain this information from the official gazettes. A record of bankruptcy is kept on a credit report for six years after the date of the bankruptcy order. If a borrower believes that a County Court Judgment (CCJ) has been recorded incorrectly, they should contact the County Court, quoting the case number included on their file. If the judgment was recorded incorrectly, the County Court will alter their records. CRAs are informed of such changes within four weeks.
Registry Trust Ltd can be contacted at: 173-175 Cleveland Street, London W1P 5PE
Information from lenders
Experian holds information about credit accounts provided by lenders over the last six years. Most lenders provide information throughout the life of every credit account. Lenders can use the information to identify good loan re-payers as well as bad re-payers. Every record of a credit account will include a history showing whether or not payments have been made on time. Credit accounts can include a borrower’s payment record over a period of up to 36 months.
Members of the Council of Mortgage Lenders record information on borrowers who have given up their homes, or had them repossessed. The information may include the address of that home, the address from which the mortgage application was originally made and the address the borrower has moved to.
Bankruptcies
If a bankruptcy order against an individual is annulled (cancelled) or discharged, it is advisable to send a copy of the Annulment Certificate or Order of Discharge to the CRAs. They will then update their records. If the bankruptcy has been annulled they should completely remove any record of it from the credit report. If the bankruptcy has been discharged, a record of it will be kept on the credit report, but it will show that it has been discharged.
Other information
Records of lenders who have searched a credit report will be shown for 12 months. This information can help lenders identify any unusual credit activity or over-commitment. Lenders may also search a credit report before giving a credit quotation. These are recorded as quotation searches so other lenders do not mistake them for credit applications.
CIFAS
CIFAS is a system developed in consultation with the Office of Fair Trading and the Office of the Information Commissioner. It aims to detect and prevent fraud. A CIFAS warning on a credit report does not mean a borrower is being accused of fraud. Organisations who are members of CIFAS examine credit applications and may contact a borrower to make sure they have applied for the specific loan or credit card that they have under review. They will not automatically refuse applications from people with warnings on their file.
GAIN
Credit reference agencies are members of GAIN (Gone Away Information Network), an organisation through which lenders share information on borrowers with debts who have moved home without providing their lenders with a forwarding address. The information may include both the address that the borrower moved from and any address the borrower has subsequently been recorded as living at.
Shared finances
If an individual shares a financial responsibility with a second individual, for example a joint court judgment, a joint account or a joint application for credit, this will be shown on their credit report. A “Record of an Association” shows a financial link a borrower has with a second party. These links are created by joint judgments, joint accounts and joint credit applications, or from information given to CRAs or lenders.
Credit scores
Credit scores are based on formulas that use the information in the credit report, but they are not a part of the report. This score essentially condenses all of the information in the credit report to a number. This gives creditors an easier way of making decisions about a loan applicant’s creditworthiness. The higher the number, the better the applicant’s credit risk.
How credit reference agencies get information
The two leading credit reference agencies are Equifax, and Experian. All of the transactions an individual has that involve credit are reported monthly to CRAs by the merchants or creditors dealt with. Most large creditors report this information to the CRAs. Some smaller lenders or merchants, however, may only report the information to a single CRA. For this reason, the credit report from each CRA may not be identical. It is wise to review copies of reports from both major CRAs.
• Equifax – www.equifax.co.uk
• Experian – www.experian.co.uk
Correcting errors on a credit report
Listed below are some steps that can be taken to correct errors on a credit report. It is very important to document everything (dates and times of phone calls, people spoken to, what they said, what action was taken, etc.), and keep copies of everything sent to a CRA. Do not send original documents - send copies. .
First, send a letter to the CRA to give your side of the story and try to clarify the inaccuracies that have been reported. The letter should include your name and address and explain what is inaccurate and why. Tell the CRA the facts and request a correction to your report. It would also help to include a copy of your report with the incorrect information circled, along with copies of any documentation that supports your claim. Send your letter by recorded delivery (with a return receipt so you know it was received). Keep a record of everything you sent.
Second, send a letter to the merchant or creditor who supplied the incorrect information to make it known that you are disputing it. Send copies of the documentation that supports your claim, just as you did with the CRA. A CRA may allow you to begin the dispute process online. This is a good place to start, but if you have additional documentation, sending copies with a covering letter will strengthen your case.
When you get a written response from the credit agency, you should also get a new copy of your credit report (if there were any changes). If any information has been altered on the report, the CRA cannot amend it unless the borrower provides proof that it was accurate. In this case, you will get notification from the CRA that the item has been put back on your report. You will receive the contact information for the creditor or merchant so that you can commence your dispute (if you know that you are in the right). Be assertive and persistent.
Advice offered in this article is intended for guidance only. It is offered without any legal responsibility. You should always consult your own independent professional adviser about your specific situation.