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What are credit scores and defaults?

An individual's credit score is an assessment by a particular lender of their credit risk (ie how likely they are to repay a debt). This is generally based on a combination of their credit report compiled by a credit reference agency (CRA) and the lender's own criteria.

A default refers to the closure of an individual's credit account by a lender due to missed repayments. This includes failed payments of utility bills or mobile phone subscription plans. Any defaults affect an individual's credit score and remain on their credit file for 6 years from the date of default.

What is a credit report?

A credit report is a detailed record of an individual's credit history, financial activities and borrowing behaviour. Credit reports are used to establish credit scores and provide information about a person's creditworthiness. 

They help lenders, landlords and other organisations assess the individual's ability to manage credit and fulfil financial obligations.

What is contained in a credit report and who compiles them?

Credit reports contain the following types of information:

  • personal details - this includes a person’s name, date of birth, list of current and past addresses, appearance on the electoral register.

  • list of credit accounts - including banks and credit cards, debts to utility companies 

  • financial links - details of other relevant individuals (eg in the case of joint credit)

  • public records - including County Court Judgments (CCJs), bankruptcies, Individual Voluntary Arrangements (IVAs) and home repossessions

  • current account provider - eg your current bank accounts (unless you have an overdraft)

  • records of any frauds committed - including actual frauds committed and any activity that may appear fraudulent (eg large amounts of money regularly coming and going from a credit card)

Credit reports are compiled by CRAs. The main CRAs in the UK are:

How are credit reports used?

Credit reports are primarily used by any companies which offer credit, known as credit providers. Credit providers include:

  • banks

  • credit card companies

  • mail order companies

  • phone contract providers

Each type of credit provider will look for different things in a credit report, but essentially they are checking to see if the individual is high or low risk in terms of repaying any debt. If someone is deemed to be high risk, the credit provider may decline to offer them credit or apply a higher interest rate.

Individuals with a higher credit score are often seen as lower risk, which means lenders are more likely to give them credit. Those with a low credit score are generally seen as having a higher risk.

As well as credit providers, credit reports are sometimes checked by landlords and employers.

How can credit reports be checked, changed and corrected?

CRAs have a statutory obligation to provide credit reports to individuals upon request free of charge. As of writing, Experian and TransUnion offer free account access for individuals to view their credit reports. Equifax only offers 30 days free access. However, a Data subject access request can be used beyond this initial period.

Individuals experiencing problems obtaining credit should consider checking their credit reports, as this may reveal the source of the problem. If there are any inaccuracies or factual errors contained in a credit report, a request can be made to the relevant CRA to make a correction.

For information on improving a credit score, see the Money Advice Service’s advice on improving your credit score.

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