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Credit scores and defaults

All individuals have a credit report which banks and other lenders use when determining whether to provide them with a loan or other forms of credit. So what do these reports show and how can they be changed?

An individual's credit score is the assessment by a particular lender of their credit risk (ie how likely they are to repay a debt), 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 six years from the date of default.

Credit reports, which are used to establish credit scores, contain the following types of information:

  • Name, date of birth, list of current and past addresses, appearance on electoral register.
  • List of credit accounts - including banks and credit cards, debts to utility companies etc.
  • Financial links - details of other relevant individuals (eg in the case of joint credit).
  • Public records - including County Court Judgments (CCJs), bankruptcies, IVAs, home repossessions etc.
  • Current account provider.
  • Records of any frauds committed.

Credit reports are compiled by Credit Reference Agencies (CRAs) - the main three in the UK are:

Credit reports are primarily used by any companies which offers 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 might apply a higher rate of interest.

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

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 - but 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 CRA to make a correction.

For information on improving a credit score, see Money Advice Service.