Find out why your credit report and credit score is key to shaping your financial future and why you should check your credit rating.
Your credit score can be a deciding factor when taking out credit, such as a credit card, mortgage or loan, and even when applying for a mobile phone or energy contract.
Planning for your financial future – be it to manage your debts better, increase your spending power, or commit to a large loan or mortgage – can ease the pressure on your money and help you achieve some of your life goals.
This guide explains why checking your credit report and score regularly can help you plan your financial future better, and why new rule changes might make it harder to successfully apply for a mortgage.
What can your credit report tell you?
First and foremost, your credit report shows you what lenders are most likely to see when they are assessing your application for a credit card, loan, mortgage and most other financial products.
If you have a missed payment from the past six years or so, that will show up on your credit report. Similarly, if you have a credit card and have paid off the balance each month, that will also be there.
These factors contribute to your overall credit score, but it’s worth noting that how your credit score is calculated depends on the credit reference agency’s own calculation methods.
Experian CreditExpert is the largest and most widely known credit reference agency in the UK, so it’s more likely that a lender you’ve filled out an application with will check your Experian report to make their decision.
Your credit report will also show information such as your electoral roll details, any court records including county court judgements and bankruptcy information, and any fraud information.
It will also show which banks and lenders have looked at your credit report after having made an application.
It’s worth noting that your credit file will not show any council tax information, driving penalties, medical history or anything relating to your salary and savings.
What is the Mortgage Market Review (MMR)?
The Mortgage Market Review (MMR) represents a huge change to the mortgage market with regards to how applications are assessed.
Under the new MMR rules, mortgage lenders will need to do more stringent affordability checks on mortgage applicants.
This includes questions on the customer’s lifestyle, as well as income.
If you apply for a mortgage now, your credit card spending and monthly outgoings, such as gym memberships and TV subscriptions could be a deciding factor in whether or not you are approved for the mortgage.
However, it’s not just the mortgage market which is being scrutinised by the Financial Conduct Authority (FCA).
The FCA have also proposed a review of the credit card industry following concerns that many credit card holders have revolving credit card debt.
Many of the new changes and regulations will aim to make lenders more responsible, in order to treat customers fairly.
This might mean that obtaining a credit card, mortgage or a loan, might be more difficult or face more scrutiny than it did before.
By checking your credit report regularly and staying on top of the areas of your finances which you need to improve on, you can begin to plan your financial future accordingly.
Using your credit report and score
You may only wish to get a look at your credit report and score once, but you can use it to your advantage if you’re checking it regularly.
For example, Experian CreditExpert offer their members hints and tips to help improve customers’ scores.
If you find an error in your credit report, be it your address details or in your financial history, you can have it fixed or Experian can raise the issue on your behalf with the business or lender who made the error.
If you are signed up to view your credit report and score on a regular basis, then it may make sense to have a look at it before and after every credit application you make.
In doing so, you can use your credit report and score to your advantage to get the right deal for you and minimise your chances of getting a rejected application, which may also hurt your score in the long run.