Universal credit ratings don't exist. Each lender scores you based on its 'perfect customer' wish list. Contrary to popular belief, THERE'S NO SUCH THING as a 'credit blacklist'.
This is a full guide to how banks credit score you, boosting your ability to get mortgages, credit cards and more, plus a trick to instantly get your free credit report. Plus, if you struggle to get accepted, try getting a Credit Card for Bad Credit.
In this guide
There's no such thing as universal credit ratings, or blacklist!
Every lender has a 'perfect customer' wishlist, so a rejection from one isn't a rejection from all. Each judges you differently, the list varies for each product and scoring systems are never published.
The tools they use to decide aren't universal, either. As well as your credit file, they also look at application info and any past dealings they've had with you.
It's all about PROFIT, not RISK
Lenders aren't obliged to dole out credit. Instead, decisions revolve around how much money you're likely to make them. This means savvy customers who always repay in full, or shift debt to 0% cards to avoid interest, may get rejected as the bank'll make no money!
Risk plays a part, as those unlikely to repay are a threat to profits. But banks exist to make money. Grasp that and you can play the system.
Not checking your files can lead to major rejection!
You've a right to see your credit files for £2, plus you can do it for free (see full details), and you should do it regularly. Check EVERY detail; people have been rejected because an unused (but not cancelled) mobile contract's address hadn't been updated after a house move, so be vigilant. Plus check for products that aren't yours in case of ID fraud.
Always check before making any big applications (eg, a mortgage - see Boost Mortgage Chances for more help before applying) to minimise your risk of rejection. Otherwise, yearly checks will let you keep a handle on your rating's health.
Get errors on your file corrected, or have your say
If your file info's wrong...
1) Check it's right at the other agencies.
2) Write to the lender the problem's with and ask it to correct the inaccuracy.
3) If it won't, write to each agency to add a 'notice of correction' explaining your side.
4) If necessary, complain to the free Financial Ombudsman, which can order companies to correct errors.
5) NEVER pay a 'credit repair' company to do this - they can't do anything that you can't do yourself.
There are simple ways to BOOST your score
It's all about making yourself look beautiful. Ways include...
a) Close unused cards. Old, unused cards can be a fraud risk. Close 'em.
b) Space applications. Too many in a short time looks desperate.
c) Sort address errors. Ensure all accounts show the same address.
d) Stability's good. Put your landline, not your mobile, on applications.
e) Be consistent. Keep personal info the same between applications.
f) Get on the electoral roll. If you're not, getting credit's tough.
For loads more, and to try the Quick Credit Checker tool, read more on improving your credit score.
What is credit scoring?
Get a loan, mortgage, overdraft, credit card, contract mobile phone or even monthly car insurance and lenders 'credit check' you to predict your likely behaviour.
Scoring systems are never published and differ depending on both the lender and the product. So just because one company rejects you, it doesn't automatically mean another will.
A credit check doesn't just dictate what products you'll receive, but also how good the ones you actually get are. For example, most loan rates are ' representative', meaning the APR depends on your credit score; with credit cards, if your score's too low for the sexy deal you wanted, you might get accepted but sent a different product.
However, if you've past defaults, bankruptcies or CCJs, you may be better off opting for a 'bad credit' credit card.
There are two big myths to clear up though.
Universal credit 'ratings' and 'blacklists' DON'T exist
It might not feel that way, though, as while each lender scores differently, the information they use is similar. A bad risk for one lender is often a bad risk for others too.
You'll be given a different credit rating by each of the three credit reference agencies (a snapshot on the day you get it). But lenders use that score as just one part of their decision to lend.
Lenders aren't obliged to dole out credit
Applications are aggregated into millions. Banks prefer to deny a few good quality applicants rather than overspend on personalised vetting procedures or accepting large numbers of unprofitable customers. For more info on this, see the Low Credit Limit guide.
It's all about how financially attractive you are...
Many people still find it deeply frustrating that they get rejected. Yet as the saying sometimes goes, "it's not you, it's them". While it's crucial to check for errors and do all you can to be as attractive to a lender as possible, sometimes you just aren't what they're looking for.
Think of it like this:
Jane Bank & Sarah Lender are on the pull. Neither like overweight men, and both like dark hair and good looks. Yet while Jane prefers intense guys with stubble, Sarah likes 'em clean-shaven with a sense of humour. So while there's lots of guys they both reject, and some they both lust after, they can still end up fancying different blokes.
Credit scoring's the same. Different lenders want different things, so one rejection may not mean a rejection by all. Yet some borrowers are unattractive to almost all lenders (ie, most will turn down bad risks). However, a small few may have a fetish for those with poor credit histories as they can charge more.
And sadly for those rejected, just as when the guys ask Sarah or Jane why they're not interested, they just say: "'Cos I don't fancy you," and that's about it. We don't always get to know other than: "Your credit score wasn't high enough."
The aim of this guide is to make sure that lenders see you in the best possible light - that when they're looking at you, you're always dressed up to the nines, looking as hot as you can, and your skirt/shirt isn't tucked into your pants without you knowing.
Credit scoring's about profit, not risk...
This is so important, let's make it as clear as possible.
Even good risks can be rejected, simply because they won't make the bank money!
Banks pick customers for their own good, NOT yours, so the credit check process is about profit, not risk. Of course, risk plays a part, as those unlikely to repay are a threat to profits.
Yet even the most solvent may be rejected if they're unlikely to act in a way that'll generate profit for lenders.
It's about sophisticated customer weeding
At the high end, the whole process is about lenders picking their perfect customers, and their reasons for rejection can seem bizarre on the outside, but make perfect sense to them. For example:
Credit card companies may reject you for always repaying cards in full
While you feel like a dream punter, for credit card companies you're a nightmare. If they spot this trend, you're likely to be rejected. The most profitable credit card customers are those perpetually in debt, never defaulting, but always meeting the minimum repayment.
Pay off in full every month, don't use cards enough, or always shift debt to 0% cards, and if they can spot you, they may reject you.
Banks score you based on products they'd like to sell you in future
Imagine a bank wants new mortgage customers. That's a costly sell. Instead, it offers a current account paying a high rate of interest on a small amount kept in it. Yet, when you apply, rather than scoring you as a bank account customer, it could actually be scoring to see if you're likely to be a profitable mortgage borrower in the future.
What they know about you
Banks use a variety of information to make their decision whether to lend to you, including checking data held by three companies known as credit reference agencies: Experian, Equifax and Callcredit. Yet the info they have is by no means comprehensive.
What banks know about you...
There are three prime sources of information used for scores.
The application form
Here, lenders obtain the crucial details of your postcode, salary, family size, reason for the loan and whether you're a home owner. Make sure you fill the forms in carefully.
One slight slip, such as a "£2,000" salary rather than a "£20,000" one, can immediately kibosh any application and possibly future ones too. See the fraud scoring section.
Past dealings with the company
Companies use any previous dealings with you to help assess your behaviour, though complicated data protection rules can limit which parts of a company can communicate to each other.
Credit reference agency files
Experian, Equifax and Callcredit compile information, allowing them to send data on any UK individual to prospective lenders. All lenders use at least one agency when assessing your file. This data comes from five main sources:
Electoral roll information. This is publicly available and contains address and resident details.
Court records. County court judgments (CCJs) and bankruptcies indicate if you have a history of debt problems.
Search, address and linked data. This includes records of other lenders who've searched your file when you've applied for credit, addresses you're linked to or other people you have a financial association with.
Fraud data. If you've committed a fraud (or someone has stolen your identity and committed fraud) this will be held on your file under the CIFAS section. More on that below.
Rent payments to go on credit files from winter 2013
In March 2012 it was announced rent payments could appear in the future on your Experian credit file. This has been delayed into winter 2013. This means whether you're on time or late paying rent, it could start to affect your ability to get credit.
The potentially positive impact is that consistently punctual rent payments will appear, boosting your credit history. Here's the key info we know so far...
You won't be linked to flatmates. Originally Experian planned to financially link flatmates who had a shared tenancy agreement. However, after pressure from MSE and our forum users, it changed its plan. See more in the MSE News story.
Who will this apply to? This won't be automatically in all contracts, landlords must insert it. It's believed many 'amateur' landlords are unlikely to do it, certainly to begin with. For now, this will only apply to the private rental market.
Why is Experian doing this? It will open up a new income stream for the credit reference agency, as soon landlords will be able to pay to search credit files before deciding to rent out a property to someone.
Who can see what? Rental payments will soon sit on your credit file, but in a separate section to any mortgage, loan or credit card history.
Landlords will be able to see your rent-paying history to judge you as a potential tenant, but not the rest. Some landlords already check a list of those who often miss payments, but this will be the first full-scale sharing of rent payment data.
Banks and other lenders will be able to see your complete history. See the MSE News story for full details.
Banks, building societies, utility companies and other organisations keep details of all your payments and transactions on credit/store cards, loans, mortgages, bank accounts, energy and mobile phone contracts.
Around 350 million records a month are tracked. They include 'default data', which shows where you're officially in default, and 'full data', which incorporates how you generally operate the account, from being the model customer to defaulting.
'Default data' has always been shared by financial companies. But since the late 1990s, 'full data' has been shared too. This means each lender now has access to all information about you gathered by other organisations.
However, if you've had accounts open since before 2000, there's a possibility no data on you from that bank will be shared, due to older data protection laws being in place then. This means some of your credit history could be missing.
In 2008, the depth of 'full data' that credit card companies share about you increased. Barclaycard, Capital One, GE Money, HBOS and MBNA now share the amount you repay (if it's the minimum, or if you repay in full) and whether you've a promotional deal (plus if you use credit card cash advances, which you NEVER EVER should).
In addition, payday loan data is now normally reported, and 'doorstep lenders' are legally obliged to share the data that they hold on you.
History with some energy/phone providers
Credit scoring was traditionally the reserve of banks and credit cards, but sharing data is now spreading to utility companies too. It's far from standard, but most now either already share details of missed payments or defaults, or reserve the right to in future.
If yours does this, it's important to be aware that if you miss payments, this could have a knock-on effect on your ability to get credit in future. Thankfully we've confirmed that being jointly named on a utility bill with a flatmate shouldn't mean you are financially linked.
The big gas and electricity firms do do hard credit checks (so they will appear on your file) so beware of this if you plan to switch energy firms at the same time as applying for other credit.
If you fail an energy company's credit scoring process, they may request a security deposit or only allow you to have a prepaid meter, which could ultimately be more expensive than fixed tariffs available on credit
Here's a firm-by-firm list of what they do:
Which utility companies share your data? (Correct at October 2013)
|Share full payment data||Share defaults or missed payments||Reserve the right to|
What banks don't know about you...
There are many myths about what information is held on credit files. Don't be fooled, though. They hold an enormous amount of financial data, but not everything.
The following things are NOT listed on your report:
Parking or driving fines. Any fines you have incurred, for example parking or driving fines. Even though they're issued by the courts, they aren't 'credit' issues, so they're not listed.
Council tax arrears. Councils don't share data about your payments, whether good or bad. If you're in arrears, it won't affect your credit score.
However, it's always wise to prioritise your council tax payments as many councils are quick to prosecute. And council tax arrears are dealt with as a criminal matter, not a civil one, so you could end up with a criminal conviction.
Race, religion, colour. None of these personal details about you are held.
Whether you've checked your file. While this info is held, and appears when you check your file, it isn't passed on to lenders and doesn't play any role in any assessment of you.
- 'Soft searches'. Some lenders (and MSE's eligibility checker) will do a soft search on your credit file, to tell you both whether you qualify to borrow from them, and what rate they are willing to give you. This isn't passed on to other lenders when they credit-check you.
Salary. How much you earn isn't on your file either, though you will usually be asked on the application form.
Savings accounts. As savings are not a credit product, they don't appear on credit files. This data is available to banks you hold savings accounts with.
Medical history. Medical problems you may have had in the past aren't listed.
Criminal record. No criminal convictions are listed.
Child Support Agency. Information from the Child Support Agency is excluded.
Information on relatives. Provided you don't have any joint financial products (see later) there is no information about members of your family who live, or have lived, with you or any other third parties.
Student loans (for some). Until 2009, the official Student Loans Company passed no info to credit reference agencies, unless you had a county court judgment (CCJ) against you for lack of payment. That meant they didn't know whether you had one or not.
However, the SLC now includes defaults on old mortgage-style loans, which students who started uni before 1998 have, as part of credit reference agency data. This doesn't apply to post-1998 loans, which are paid through the tax system.
Declined applications. Lenders can only see whether you've applied for credit elsewhere, not whether you've been accepted or declined. However, they may be able to guess by examining the credit accounts you have open.
Some defaults or missed payments. Usually, these stay on file for six years, so anything before that may be wiped. However, if you close an account, missed payments could remain on file until the sixth anniversary of closure. Bankruptcy is wiped six years from the date you're declared bankrupt, provided it's been discharged.
PPI and bank charge reclaims. If you've attempted to, or have successfully reclaimed PPI or bank charges, it won't appear on your credit files. However if you've had bank charges, the penalties will show on your records.
Check your credit files
As every lender uses a different credit scoring procedure, pinpointing how any given one will view you is impossible. Yet keeping an eye on your general credit healthiness is important. You've got a few options to pick from.
Get statutory files for £2 (now online)
The building block of a credit check is your 'statutory credit file'. You've a right under the Consumer Credit Act to see the one held by each reference agency for £2. At long last, this can now be done online, much quicker than the old mail-only method. Here are the direct links...
Instant reports will be subject to the credit agency being able to verify your identity instantly. It may ask you to contact it to confirm your application.
The statutory report contains your personal details, info on financial links to other people, whether you are on the electoral roll, the credit accounts you have, any missed payments or defaults, and a list of other recent searches on your file (though these only stay on the file for a maximum of one year).
You'll also usually find a 'score' on your credit file if you check it. This is out of 999 with Equifax and Experian, and from 1/5 to 5/5 with Callcredit. Don't confuse this with lenders' scoring systems. All are looking for different borrowers, and will use credit reference data as only one source of information when they're building up a picture of you.
You can have a 999 or a 5/5 credit score with a credit reference agency and still be rejected. Agency scores are based on "what they know about you". If there's not much information, but it's all good, then you may get a top score, but still be rejected as there's not enough information for them to be sure you're a good risk.
You don't always need to pay for your credit file, there's also a trick to instantly get more detailed info online for free at the two main agencies (see the section below). After you've done this, try the quick, anonymous credit checker below to see if you can improve your score too.
Get paid to check your credit file!
Credit ratings are big business. Agencies used to make money by flogging data to lenders, but our lust for credit means selling it to us is a hugely lucrative market. Luckily, it's easy to exploit this to get a free report and even get a cash profit on top.
What's the loophole?
Credit rating agencies' top end service is 'credit monitoring', which costs up to £180 a year. To tempt you in they offer free month-long trials, which require you to set up a direct debit or regular credit card payment.
The trick is simple: sign up for a free 30-day trial with one of the providers below, then cancel before you start paying (preferably as soon as you've signed up and checked your details). This means you get the credit report for free.
How many and how often?
If possible, check all three agencies, as there's no harm. While doing a check is recorded on your file, it does NOT add a 'credit search' that a lender can see, so has no impact.
Not all providers use the same agencies. You may have some information on one, but not another. So do as many as you can, or if you've been rejected, try to find out the agency the provider uses and check that.
If time is short and you can only use one, then choose Experian or Equifax as they're the biggest. If you're worried about hassle, then it's best to simply use the official credit checking system. It's a good idea to do a check-up roughly every year to 18 months, and always do one in good time before making any important applications.
How do I get PAID?
To make a profit on top, you must sign up specifically via special cashback websites which pay you a set amount when you click through from them. We've listed the top sites to go through below for each of the agencies.
This type of cashback is a great boon, but there can be problems so it's never 100% guaranteed. Here, the worst that happens is you get your report for free, provided you remember to cancel.
Equifax's Credit Report
Details: Equifax Credit Report* offers a "30-day free trial, then £9.95 a month", so ensure you cancel at least 24 hours before the free 30 days is up. When you sign up, a payment card needs authorising, but the £1 fee that's charged is quickly refunded.
Best cashback: Go through Topcashback* and you can get £8.58 for taking up the trial. Alternatively, Quidco pays £5 (but takes the first £5 cashback earned every year as an admin fee for some customers).
Plus note down how to cancel: To request cancellation, call 0844 335 0550 (020 7298 3000, and asking for customer services can also work) and select option three. Quote your product reference.
Experian's Credit Expert
Details: Credit Expert* offers new customers a 'free 30-day trial, then £14.99 per month' service which includes your credit report and free credit scores (indicative only – every company scores you differently). If you want your credit reference file just sign up, then cancel within the 30 days.
Best cashback: Get the 30-day Experian trial by going through Topcashback* and you can get £8.08. Alternatively, Quidco pays £5 (but takes the first £5 cashback earned every year as an admin fee for some customers) if you sign up via it. To get the cashback, you must keep the trial for at least 20 days.
Plus note down how to cancel: It's very easy, just call the freephone number 0800 561 0083 (may not be free from mobiles).
Callcredit now provides free-for-life reports through its Noddle service, however, it's not as widely used by providers as the other two. Visit its website, register your details and it will email you back with details on how to see your credit file.
You will need a credit or debit card to register with Noddle. They don't charge it, but it's used in their verification processes. Some customers may see a 10p charge on their account shortly after registering, this is part of checking the card's registered to the right person and is valid. The small charge should be instantly refunded.
If you fail to log in every three months, membership could expire, as Noddle reserves the right to cancel dormant accounts. Users can join again for free if that happens.
What to check on your file
Once you've got your credit files, the key is to check the accuracy of the info that banks are judging you on in their credit check. We're talking billions of pieces of data, so there will always be mistakes. So, quite simply...
One mistake can be a hammer-blow to credit applications.
First, the obvious stuff. Are all your debts correctly listed? Are there any inaccuracies on your repayment history?
Yet other details are important too. Check your present and past address details. Errors here can lead to you being judged on someone else's credit history. Also, your finances may be incorrectly linked with someone else's.
Focus on any currently active accounts. If they're still open, even if you haven't used them for years, it can cause problems.
What to do if there's an error?
If you disagree with anything on your file, just write to the agency and request it's changed. If the agency agrees, it should quickly change the file, though sometimes you'll need to talk to the company that originally filed the data. Also check if the error appears on the other agencies' records too.
Unfortunately, sometimes it may refuse to amend your file. If this happens, then you're entitled to add your own comments as a 'notice of correction'. This will often mean your credit applications take longer, but it may help you to obtain better deals. You can also make a complaint to the Financial Ombudsman.
Fraud scoring: The hidden credit killer
When you apply for a product, it isn't just a case of assessing whether you're desirable, but also checking that the application is legitimate. Therefore, as well as the credit reference agencies, lenders also use completely separate anti-fraud agencies to try to weed out problems. The two big ones work in very different ways.
How it operates: This rarely-mentioned system's much less factual, and therefore is prone to greater errors. However, it's used by almost all major banks and building societies, receives 100,000 applications a day and has a real impact.
It works by looking for inconsistencies between your current application form and any past applications you've made, trying to spot factual errors. While it can't block your application itself, it triggers a red warning flag to lenders, and this happens roughly one time in every 20. Lenders can then check the info, and either ignore it, or do further checks. They're not allowed to reject you based on the National Hunter red flag alone.
Things like a number of applications in a few days can also trigger warnings, though generally that's more acceptable with mortgages, where it's more common, than with credit cards.
What to watch for: It's crucial to be consistent, even over long periods, when you fill in application forms. If you have a number of job titles or phone numbers, try to use the same one on every application. Changes to guidance introduced in 2009 mean lenders are supposed to tell you if National Hunter has been a contributing reason for your rejection.
Check your file: To check the info it holds on you, write to it making a data protection request and enclosing £10. The National Hunter website explains this. This can also be a useful thing to do if you think you're a victim of ID fraud.
What you'll get is effectively a list of the information you've put on past applications. If there's an error on the file, which is possible, you can't correct it directly with National Hunter. If this happens, you'll need to go back to the lender who submitted that application in the first place to have it corrected.
CIFAS:Lists confirm past fraud
How it operates: It is simply a record of known fraud, so if you're on there, in general, you should know about it. It's also the organisation to speak to if you think you've been a victim of ID fraud. Worryingly, any fraud committed at your address in the past could appear on your CIFAS file, even if it was nothing to do with you.
As with National Hunter, a lender cannot refuse your application based on the CIFAS data, but must investigate first. Hopefully, that should prove you were not the perpetrator.
Check your file: The info it holds on you should be contained on your credit report under the CIFAS section. For a £10 fee, you can also request a copy of any files CIFAS holds on you (which is hopefully nothing). Full details on the CIFAS website.
If you've a dispute with the info it holds, you need to contact the company that logged the information on your CIFAS file first. If you're not happy with the response, you can ask CIFAS to investigate after you've received a final response letter.
For more information on ID fraud protection, see the Free ID Fraud Help guide.
Manage and improve your credit score
Once you know what lenders see, you are in a better position to sway their opinion. You do this by thinking tactically and behaving appropriately. Unfortunately though, there's no magic. After all, every lender does it differently. But there are easy ways to improve the odds.
A quick note, though. You may have seen adverts for credit repair agencies promising to improve your 'rating' for a fee, yet there's nothing they can legally do that you can't do yourself for nowt (find out more about credit repair agencies ).
The quick Credit Checker tool...
Answering 10 quick questions gives you a rough indication of how good a risk you're likely to be to lenders. Risk isn't everything, profitability is, but this is a good clue to general attitudes.
Don't be afraid to play
The most-used credit reference agency, Experian*, provided the calculations and data to build this tool, so the results are kosher. Try playing with different answers, and see the impact on your score. Once you've pondered the list below and thought what you can possibly improve, plug some different answers into the checker and see if it affects the results.