Credit History

What is a credit history?

A good credit history is very important to your future financial position. A bad credit history can prevent you from obtaining a loan, a new financial product or even a house. It will also result in higher interest payments for new loans. A bad credit history can also affect your search for a new job because your future employer may check your credit history as part of their reference process.

Your credit history is a record of your recent transactions against payments due. The payments due will include credit card payments, payment on HP agreements, car loans etc. It is important to check your credit history before you apply for a loan because this is what lenders use to assess the risk to them of lending you money. Lenders will always request access to your credit history when you apply for a loan.

Your credit history record is maintained by credit scoring agencies. The two most popular agencies are Experian and Equifax, and together they supply over 99% of all credit history requests from lenders. These agencies maintain credit history records based upon data from approximately 15,000 different sources each month including all financial companies. Your credit history contains a wealth of information including your payment history for revolving accounts, mortgages and installment loans, inquiries from other financial companies when you have requested a loan, public records, collection information and personal identifying information.

Your credit history record contains a credit score which ranges from 300 to 850, with numbers over 700 usually considered good. Surveys have shown that only 40% of people that have a credit history record have scores higher than 750.

You should check your credit history to ensure that your credit/personal details are up-to-date and accurate. If you notice any inaccuracies on your credit history, it is possible to amend the information by writing to the agency. By doing this, you will be taking control of your credit history, not letting your unchecked credit history record decide your destiny.

How to check your credit history

If you have never checked your credit history you should do it now. You should definitely be aware of your credit history record if you are applying for a loan or another financial product such as a credit card.

You can order your credit history record online from Experian and Equifax:

www.experian.co.uk
www.equifax.co.uk

You can pay by either a credit or debit card in your name. A report of your credit history record can be posted to your home address or emailed to you. You can request a single credit history record or subscribe to a regular service (e.g. monthly) to review your credit history record on an on-going basis. You will need to submit two separate applications for you and a partner, whether married or not.

When you receive your credit history record there are two key things that you are looking for:

County Court Judgment (CCJ):

The information will provide the details of the CCJ including the date, case number, court name, value, defendant, and whether the CCJ has been satisfied, i.e. paid or not.

Defaults:

A Default is a formal demand for payment against an Agreement for which you have missed 3 payments. A Default must contain a number of regulatory requirements because it is covered by the Consumer Credit Act. The demand must state who you are, when and where it was delivered to you, the creditor details, what is owed, when you must pay the amount by and what will happen if you do not pay.

If you receive a Default Notice the best course of action is to contact the creditor immediately and speak to the stated supervisor on the notice. Tell them that it is a mistake and that you will pay immediately, if you can. Ask them to cancel the Notice which can be done easily.

If you feel that the information on your credit history is wrong you can write to the agency and ask them to rectify the entry. The agency must reply within 30 days. You can also have a note attached to explain the circumstances of the debt (e.g. you have been made redundant). If you find an error on your credit history with one of the credit agencies (i.e. Equifax or Experian) it is worthwhile checking your credit history with the other agency to make sure that the error is not repeated. This is because you can not be sure which agency will be checked by the lender when you apply to for a loan.

If your credit history is not corrected to your satisfaction you can write to the Office of Fair Trading.

How can you repair your credit history?

Your credit history can be repaired but you firstly need to find out exactly what you owe and to whom. Make sure that any errors in your credit history are corrected and to ensure this you should request your credit history record again a few months after the original request. Be persistent until errors are corrected because it can have a great bearing on your ability to get a loan or a new financial product.

Once your credit history is correct there are some steps that you can take to ensure that further damage to your credit history is minimised.

Pay your bills on time

Recent credit history over the last year is always more important than past credit history.

Pay off as much debt as you can

If you can not pay off any of your debt then ensure that you always make the minimum monthly payment because this will ensure that your credit history is not made worse.

Do not close too many credit card accounts

If you close accounts soon after paying them off you can damage your credit history.

Consolidate your debt

If you have multiple outstanding loans and credit cards bills you can probably reduce your monthly payments by debt consolidation with one lender and also spreading the loan over a longer period of time. You should consider a debt consolidation loan in these circumstances.

See Myloanchoices guide to debt consolidation loans.

Change your personal spending habits

This may be difficult for you but it is vital. Create a monthly budget and spend within it. Make sure you allow for some treats in your budget otherwise it will not be maintained. Keep a record of your spending and plan ahead for the rest of the month.

Repairing your credit history will take time so remember to be patient. Do not be tempted to contact companies claiming to fix your credit history for a fee as this usually does not work. Companies that specialise in debt consolidation only charge high fees and the success is down to nobody other than you and you can do it by yourself.