What is a Credit Report? (Plus Common Misconceptions)

Credit reports or credit references rank among the top personal finance areas that are far too often ignored.

This can be a big mistake, as your credit report often forms the basis of how much you can borrow and at what rate. A lender will use it as an indicator of what kind of borrower you are. 

That’s why it’s crucial to understand your credit report - what it is, how to read it, and how a prospective lender might interpret it. 

What is a credit report? 

The credit report contains information about how you manage and repay debts. Lenders and other companies use it as a type of report card when deciding whether or not to work with you. 

If you have had credit of one form or another, it will almost certainly have been recorded in this report. It contains information such as your outstanding credit balance and payment history, as well as whether you are a registered voter at your listed address. 

All of this information is evaluated by your credit report provider and you’re given an overall score, summarising how reliable you are. 

How do lenders use my credit report? 

Using your credit report, lenders will make an assessment on how “high risk” you are as a borrower, and therefore how willing they are to lend you money. 

So, if you always pay your bills on time, have consistently paid back debts and have a trackable trail of previously registered addresses, you are seen as a safer bet than somebody with late and unfulfilled payments, or little to no information on their report. 

Essentially, a good credit score is an important tool in convincing a lender to consider you as a borrower. 

Common misconceptions about credit scores 

Wondering why your credit score is low? Here are a few popular myths as to why that might be. 

• Credit blacklisting 

There's no such thing as credit blacklisting. Each lender assesses your credit report differently. 

• An address being blacklisted 

The house you live in is just used to check your identity, and so you shouldn't benefit from moving house or be negatively impacted by any previous tenants of your address. 

• Someone else in my house is negatively affecting my score 

As aforementioned, your address is only used to check your identity. Your credit score should never be affected by an individual you have no financial connection with. 

• Bankruptcy lasts for one year 

Even if you are discharged from bankruptcy after one year, it’s likely your credit score will continue to suffer after this time period. 

• It's solely based on income 

While a lender will consider your income, the focus is more on how well you manage your money. Your credit report is a reflection of how you handle your credit-related finances. 

Check your Financial Connections 

If you have held a joint finance account with anyone in the past you will likely have a financial connection to that person. This can affect your credit score, even if you’re no longer connected to them, especially if they have a bad score. 

The credit reference agency can remove your link to someone if you are no longer financially connected to them. 

How do you improve your credit score? 

A lender may be reluctant to lend to you if you have a small deposit, wish to borrow a very high multiple of your income, or want to purchase a non-standard property. As a result, your credit history will need to be the best it can be. 

If you want to increase your chances of being accepted, you must limit your risk factors. This means raising your deposit, finding a cheaper property, or giving yourself a bit of time to improve your score prior to making an application. 

It is also helpful to seek the advice of a fully registered, reputable broker, like The Lending Channel. If you need help with raising your credit score, our team is here with free, no-obligation professional advice.  

After working many years in our field, and a long track record of satisfied customers, we’re dedicated to finding the right lending pathway for you. Whatever your situation, we feel confident that we can provide the bespoke support you need to find and apply for the right loan.  

Don’t hesitate to get in touch with our friendly mortgage team today!