If you have ever borrowed money from a lender, such as a bank or building society, you will have a credit file. In this blog, I take you through some of the basics of credit files.
What is a credit file?
Think of a credit file as a financial CV. Whereas a traditional CV outlines your academic and employment profile, a credit file churns out your borrowing and repayment history.
Specifically, it will contain:
- The amount of money or credit you have borrowed,
- How much of that has been paid back,
- Details of any missed or delayed payments (minus missed council tax payments),
- Basic details such as your name and address.
A credit file won’t have any personal non-financial related information such as criminal record or medical history.
Who is collecting my financial data?
Credit Reference Agencies (CRAs) are responsible for collecting the information held on your credit file.
You might be wondering whether your permission has been sought to collect this data. In truth, they don’t require your permission because the sources they use to get their information include financial institutions you have previously or are currently borrowing from and publicly available data that can be accessed by anyone.
CRAs regulated by the Financial Conduct Authority (FCA), so you don’t need to worry about your data being mis-used or ending up in the wrong hands.
Who can see my financial data?
You are, of course, allowed to see your own financial data. All you need to do is sign up to a CRA. Some popular CRAs you may already have heard of include Experian and Equifax and it is usually free to access your credit report for the first time but you would need to sign up to a subscription for regular access.
Your credit file isn’t publicly available. This means your friends, family or employer cannot request access to your credit file.
The only people who can are those lenders that you have requested to borrow money from when they are trying to make a decision on whether to accept your application. By looking at your credit file, they will be able to see how well you have been able to pay off monies borrowed in the past, as well as any existing debts you have, to determine your ability to pay back their money, should they lend it to you.
CRAs will share this information with them under what is known as the ‘principles of reciprocity.’ In layman’s terms, this means that because some of the financial data CRAs have about you is collected from a wide variety of your existing and previous lenders, in return the CRA will share that same information with any potential future lender. It’s a bit like returning the favour. The entire principle ensures that before lenders decide to lend you money they:
- Know you are who you say you are – to prevent identity theft and fraud
- Have a good idea on the likelihood of you paying back your debt
As you can see, the principle is not only there to protect lenders but to protect you too, in case someone is trying to borrow money by pretending to be you.
Should I be interested in my credit file?
I’d like to think that by now, you are aware of the importance of your credit file. However, I will re-emphasise because a study showed that:
- 24 per cent of people are bored by the topic of financial data
- A fifth of people never talk about their financial data
- 16 per cent of people believe they have no influence on their financial data
- 19 per cent find financial data confusing
- 9 per cent are fearful of financial data
In reality, your credit file is one of the most important pieces of information that you absolutely should care about. If you are planning something big in your life, for example your wedding, purchasing a new house, starting a family or opening your own business, your financial data will play a pivotal role in the types of credit you can access and will often be the sole determining factor on whether you get that mortgage, loan or a piece of equipment on hire purchase.
Financial data is nothing to be scared of because it’s your data and therefore only you can influence the contents therein.
What’s the link between my credit file and credit score?
The sum of all the information held on your credit file will go through complex algorithms to determine your credit score. A credit score is a number. The higher your credit score, the better you have been at paying back debt on time. As a result, future lenders are likely to trust you with their money.
When you sign up to a CRA, you will also see your credit score.
I can see mistakes or wrong information on my credit file, what can I do?
You can have these corrected via a process known as credit correction. It’s very important to correct any misinformation that is needlessly bringing down your credit score. If you’re not sure on how to do this, I can do it for you. Sign up here.
Next steps
This blog is intended for educational purposes only and reflects how credit files typically work. If you want to find out more or have a question that is specific to your circumstances, please call me on 0330 236 9930, 0330 236 9938 or 07961 116321. The first conversation is free of charge and all conversations are in strict confidence. You can also email me on vee@navigatebr.com.
Leave a Reply