Know Your Score
A Clear Guide
Contents
Chapter 1
Understanding Credit
Chapter 2
What is a Credit Report?
Chapter 3
What is a Credit Score?
Chapter 4
About ClearScore
Chapter 5
Examples
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Chapter 1
Understanding Credit
Credit is a type of agreement which lets you receive goods, services or money now and pay
for them in the future. The repayments are normally made by monthly instalments and you are
charged an interest rate, which is a percentage of what you owe. Most people would see it simply
as borrowing money in one form or another.
The most common types of credit are mortgages, loans, overdraft and credit cards.
But there are many other situations where you obtain credit, though you might not realise you’re
doing it. For example, mobile phone contracts spread the cost of your phone over the length of
the agreement.
Most adults have at least one form of credit or will borrow in the future.
Debt
Anyone utilising their credit can be considered to be in debt. Though the word has
negative associations, not all forms of debt are necessarily bad – for example, not many
people could afford to pay the value of their house up front so most of us decide to
spread the cost over the years and take out a mortgage.
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Bell Building, 111 Lambeth
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111
Lambeth Road,
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W6 9DL
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Chapter 2
What is a Credit Report?
A credit report is a document which contains information on your credit history and financial
dealings. It clearly shows how you handled your debt in the past 6 years: how much you borrowed,
from whom and if you repaid it on time. This also includes such types of credit as utility and mobile
phone bills. These are forms of borrowing because you get services and goods (such as a mobile
phone) upfront and then pay for them in monthly instalments.
If accurate, you cannot alter the information on your report, but there is an option to clarify the
information that appears on it by adding a notice of correction. For example, if in the past you got
into debt because of a redundancy but your circumstances have changed since then you can ask
the lender to take this into consideration. If, however, there is a factual mistake on your report, you
can dispute the information. If it does turn out to be an error, the credit reference agency has to
correct it.
Things that appear on your report:
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Personal information (Name, date of birth), your address, previous addresses for the
past 6 years, and any financial associations with another person, e.g. joint mortgage.
Whether you are on the Electoral Roll, which means that you are registered to vote at
your address.
County Court Judgements (CCJs), bankruptcies and Individual Voluntary
Arrangements (IVAs).
Credit account information: how much you owe and whether you have paid on time,
the age of the account (including mortgages, credit cards, store cards).
‘Hard’ searches carried out on your account.
Fraud that has been committed using your name or any fraud that you committed
using someone else’s name.
And things that don’t:
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Current or savings account information
Your salary
Student loans
Criminal record
Medical history
Parking or driving fines
Council tax arrears
Information about gender or ethnicity
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A lot of the information in the credit report is confidential and that’s why specially licensed
Credit Reference Agencies are in charge of holding it. The three agencies in the UK are Equifax,
Callcredit and Experian. ClearScore uses credit reference data from Equifax.
Credit Reference Agencies
These are companies which collect information on the credit rating of individuals. The
information comes from lenders, mobile phone companies and utility companies. This
information is stored and organised by the agency so that it can be easily used by
potential lenders to assess a person’s credit risk.
These agencies are connected with the different banks, lenders and credit card companies which
pass on your information and details when you borrow money. As all the information from the
different lenders is stored in one place, it is easier for a prospective lender to access it when they
want to understand your borrowing habits.
However, companies and individuals cannot simply check your report – it’s private. They need
permission from you which is normally part of the application process for loans and other forms of
credit.
Notice of correction
This is a note of up to 200 words that you can add
to your credit report to clarify any late payments
or defaults on a debt, e.g. if they were caused by a
redundancy.
Statutory report
Everyone is entitled to a £2 statutory credit report
which the credit agencies are obliged to provide within
7 working days of your application. The document you’ll
receive is a simple print out or online version of your
report and will not provide you with any supporting
information or your score.
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Bell Building, 111 Lambeth
Road,
111
Lambeth Road,
1 Hammersmith
London,
SE1 7JL Broadway
London
W6 9DL
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Chapter 3
What is a Credit Score?
A credit score is a three-digit number which helps lenders decide whether to give you credit. One
way of thinking about it is to see it as a measure of risk to the lender. The higher the score, the
better you managed your debt in the past, which makes it more likely that you will be considered
low risk and therefore given a form of credit.
ClearScore shows you your Equifax credit score. The score ranges from 0 to 700.
A higher score means that your application is more likely to be accepted. However, it also means
that you are likely to be eligible for better interest rates and better deals when borrowing money
or taking out a mortgage.
Your different scores
None of us have just one credit score. This is in part
because there are three different credit scoring
agencies and each one of them might have slightly
different information about you. Each lender puts
different value to the various aspects of your credit
report, which also alters the score. However, scores
from different agencies don’t tend to vary significantly.
The score is useful because it gives you an idea of how the lenders view you. Most importantly, it
allows you to keep an eye on the changes in your score, which reflect the changes in your report.
For example, missing a payment will lower your score but paying off a loan might affect it positively.
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Chapter 4
About ClearScore
Even though the credit report and score information is so important, your access to it has been
limited up until now, and people have had to sign up and pay to see their score and report.
ClearScore has changed that. We give you access to your credit score and report for free, with no
time-limited trials or hidden costs.
We’re making it completely free because we don’t think it’s fair that you have to pay to see
information that can have such a big impact on your life. Having access to your credit score and
report means you can plan better for the future and make informed and responsible decisions
about how you manage your debt.
Your score is updated every month, so you can monitor any changes. You can see your report and
score as many times as you like by logging into your ClearScore account. However many times
you check it, there will be no effect on your score.
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W6 9DL
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Chapter 5
Examples
Tom, 28.
Situation:
Tom has a fulfilling career as a paramedic and he has diligently saved up enough to put down a
deposit on a house. However, despite the fact that he has a good income and he has managed his
finances well, saving a large proportion of his paycheque, he was rejected for a mortgage.
After he was rejected, Tom decided to check his credit report and score, to find out where he has
gone wrong. Though he has never missed any payments, Tom also had very little on his credit
report to prove that he can responsibly repay debt. Having a ‘thin file’ means that you don’t have
enough past credit accounts to give the lender an idea of your habits when it comes to paying
your debts.
Solution:
If you have never borrowed money from a bank or a lender, your credit score will probably be low.
However, there are other ways to build your credit report. Some utility bills and mobile phone
contracts will count as forms of credit and therefore factor into your score. Perhaps the simplest
way to build credit without taking out an unnecessary loan is to use a credit card. If you move a
small amount of your monthly spending from your debit card to a credit card and pay it back in full
every month, you will be actively building your credit history.
For Tom, the best solution is to start the process as soon as possible. Though building credit is not
instantaneous, it’s the only way to ensure that you are eligible for the best rates and that you can
secure that mortgage.
Amy, 45.
Situation:
After her recent divorce, Amy decided to take care of her finances. Alongside separating her bank
accounts and selling the house that she owned with her husband, she also wanted to protect her
credit score. Looking into her credit report showed that she was still linked to her ex-husband,
even though the financial connection did not exist anymore.
Solution:
Outdated financial associations which link your credit score to another person can be harmful
to your financial wellbeing. Their debts could affect how lenders see your application, so it’s
important to check that you are not incorrectly linked to someone.
For Amy, the solution is to contact her Credit Reference Agency and notify them that the
information is outdated. They might ask for proof to show that the connection has in fact been
broken but there should be no issues with a disassociation.
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Theclearscore.com
Bell Building, 111 Lambeth
Road,
111
Lambeth Road,
1 Hammersmith
London,
SE1 7JL Broadway
London
W6 9DL
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