Today’s article is a guest post from Sara Williams, who blogs about everything to do with debt at Debt Camel.
I read Nicola’s recent post Why Financial Knowledge Should Be Part Of Your Self Care Routine and you might be surprised that I liked the fact that she didn’t mention knowing about your credit rating.
After all, I blog about credit ratings because they are important for many debt situations… so shouldn’t I urge you to check your credit score every month and work on improving it? But for most people, most of the time all that matters is paying your bills and debt repayments on time, as Nocola says.
A daft number of credit reports
At the moment there are at least 16 different credit reports in Britain. I’ve listed them in my The 3 best free ways to check your credit score & records article, which has a table showing which each of them does and what it costs.
16! Why are there so many? A few years ago there were half that number?
How the credit record reports make money out of you
Credit scores have turned into big business in Britain. The aim of this business isn’t to enlighten you or improve your financial well-being – it’s to make money out of you.
Half of them – including most of the new ones – charge you a monthly subscription, in some cases £15 or £20 a month. That adds up to serious money over the year!
And many of the other make money by suggesting loans or credit cards you may be eligible for – they will get a referral fee if you sign up.
To you this may look like a useful service, but there is no guarantee that these deals you are being shown are the best ones you could get. If you went to a credit card or loan comparison page, you may find there are better offers.
And the APR shown can be misleading – a lender only has to give that rate to 51% of the people it makes an offer too – the rest may be offered a higher rate.
So don’t be tempted by an offer you may not actually get to take out credit without doing proper research.
Hardly any reports are open about what they give you
There are three Credit Reference Agencies (CRAs) in Britain: Experian, Equifax and TransUnion (which used to be called Call Credit). Different lenders report to different CRAs.
The reports will tell you, often in small print, that they are showing Equifax data say…
But they rarely explain that they are NOT reporting on other CRA data, nor that you may see a very different credit score if you looked at a report on a different CRA. I have people asking me which report is best – none of them are, they are all reporting on different information.
And where a report says it covers all three CRAs you have to look at the tiny print and know what you are looking for to find out that although they are showing you the credit score number from all three CRAs, they don’t give you all the data from all three CRAs.
Also most bury it away in the small print that, although you can look at your report at any time, it is a snapshot that is only updated once a month.
When should you check your credit record?
Of course sometimes it’s important to look at your credit records:
- when you want to apply for a mortgage or other important finance soon – you need to find any unexpected problems when you have time to sort it out.;
- if you are rejected for credit unexpectedly;
- if you find someone has taken out credit in your name, to find how often this identity theft has happened;
- when you are trying to repair the damage cause by bankruptcy, an IVA or a DRO – which all have the same bad effect on credit records for 6 years.
And if you have missed payments or had big financial problems and defaulted in the past, then you may be looking forward to the day when all the problems go and you again have a good credit record. But checking your reports every month won’t actually speed that up – it takes time for the bad marks to drop off.
So check all three CRAs and never ever pay for a credit report!
When you do want to look at your credit records, it is essential that you check all three CRAs. You may find they are much the same – but you can’t know until you look. Some people will find a nasty surprise on just one CRA, possibility because of an error that needs to be corrected.
If you find an error about a debt, don’t ask the Credit Report to help – they just send your complaint to the CRA. The CRA only reports what the creditor says, so they send your complaint to the creditor. Then often the lender tells the CRA it’s fine and you are no further forward.
You need to speed up this process by complaining directly to the lender yourself and then taking your complaint to an ombudsman if the lender rejects your complaint.
And it is never, ever worth paying a monthly subscription. The free reports are just as accurate.
If you want to know more about the complicated world of credit reports have a look at my Credit ratings – problems and questions page, which has links to detailed information on many situations.
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