3 They are watching you
Let’s look at how the credit reference agencies compile credit scores.
They don’t have access to, or explore, all your personal financial data but they do examine the following.
- Have you any county court judgments (CCJs) (in Scotland, decrees) or other court orders indicating that you have a history of debt problems?
- Have you ever been convicted of a fraud?
- Has anyone stolen your identity in the past and then used this false identity to commit fraud?
- Have you ever defaulted on a payment (not paid a bill in full when it was due)? Defaults normally stay on your file for 6 years. Are you still in default?
- How do you operate your bank and credit card accounts? For example, do you pay off your credit card bill in full each month?
- How many applications for credit have you made? Note, though, that the agencies cannot find out whether you were accepted or rejected when you made these applications.
- Are you on the electoral register? This is one vital piece of non-financial information that will affect your ability to borrow money.
On the other hand – and proving that the agencies are not ‘big brothers’ scrutinising all aspects of your life – these are some financial and other matters that are not recorded by the credit reference agencies:
- your income or pension
- details about your savings and investments
- your medical records or time taken off work for sickness
- your race, religion, ethnicity or any political affiliations (like membership of a political party)
- student loans – unless you’ve defaulted on payments
- your record in making Council Tax payments on time
- fines for driving and parking offences.
The analysis made by the credit reference agencies leads to a score being assigned to you. The scores for an excellent credit assessment are set out below – although note that the agencies may, on occasion, make changes to their scoring ranges.
Table 1 Credit rating agencies’ excellent scores
When lenders make decisions about credit applications they use the information on your credit file(s), as compiled by at least one agency they employ. They also use information about your current status that you, yourself, supply in your application. This typically includes such routine personal information as:
- Your age.
- Your employment. This might include confirmation of whether the job is permanent or a fixed-term contract. You may also have to disclose whether you have completed the probationary period that commonly applies when you start a new job
- Your salary. Normally bonuses are not included unless they are contractually guaranteed
- Your marital status and whether you have any dependent children.
- Your address.
- Whether your home is owner-occupied or rented, or whether you’re living in someone else’s home – for example, your parent’s house.
The information supplied by the credit reference agencies and in your application to a lender builds up an assessment of whether you’re likely to be a ‘good credit’ – someone who does not default on bills or loans.
The information also helps lenders know if you’re likely to be a customer who generates profits for them. This would be the case, for example, if you build up interest on your credit cards by not paying off the balance in full each month. Provided you don’t default this would be good news for the profits of the credit card company – but obviously bad financial news for you. Credit card debt is almost invariably expensive and should be avoided.