Credit Report vs Credit Score

What is a credit report and what is a credit score and how do they differ?

A credit score is like a financial scorecard. It’s usually a three digit number that gives lenders a quick snapshot of your credit-worthiness. Generally a higher score indicates better credit health and makes you a more attractive borrower.

A credit report is like a financial diary that lenders can dig into. It contains all the details about your credit history – it’s all the evidence that supports your credit score.

So the credit score is a snapshot, saying whether you’re excellent, good, fair, poor or very poor as a borrower. To see a track record of your payments over the last six years, you’ll need your credit report – you can do a deep dive into your accounts.

It will list all your active loans, credit cards and anything you’ve had in the last six years and sometimes longer. It also sets out your track record for making payments on time.

Is a credit report or credit score more important and why? Does your credit report matter as much as your credit score?

They both complement each other. From a mortgage perspective, the report is scrutinised more than the score, because each bank has its own internal credit scoring system. Plus, each credit agency is different.

If you look at your credit report with different companies, their scores vary. They could be out of 700 or 900. The score is important, but a mortgage lender is more interested in the report. The lenders really want to see how you’ve kept up with your credit commitments and if you have paid them on time. This is what the report will show.

It will also show whether you’re registered to vote, what utility bills you might be signed up to and what financial associations you might have. All these things can build up your credit report.

Why should I check my credit report?

It’s a lot easier to be proactive with your credit report than to react to anything that comes up. If you are checking your credit report regularly you will be able to see what lenders see when you apply for a mortgage or any other borrowing.

Get a copy of it, because if you intend to borrow some money in future, it’s good to be aware of what the lender sees.

If there are any issues you’re not aware of – late payments registered against you or County Court Judgements (CCJs), you can address them. I could tell you all sorts of stories about clients who weren’t aware of a parking ticket that turned into a CCJ. That could hinder you getting a mortgage or mean you need a much bigger deposit or higher monthly payments.

You can sign up to lots of different agencies and they’ll just email you if there are any changes. The big advantage is making sure you don’t get penalised when it comes to applying for a mortgage or borrowing in future.

What should you look at first on your credit report?

Most people would turn to their credit score straight away. It will give you a quick idea of how you’ll be seen. But it’s not everything. Each credit reference agency is different and so are the lenders.

The first thing you should really check is that the information held is correct. There are often errors – address errors, credit commitments or things you didn’t even know about.

So proofread your credit report and if don’t you don’t understand it or how it’s positioned, get some help from someone like a mortgage advisor. Incorrect information can have a detrimental effect on your mortgage application.

How long does it take for finance to come off your credit report?

The main credit reference agencies keep a track record of your credit accounts for six years. For any missed payments, old accounts or credit cards you’re going to need to wait six years from when they were last active until they actually come off your credit report.

I have seen some reports that hold data longer than that – but generally lenders are only looking at the last six years.

Why is my credit score dropping when I pay on time? What lowers your credit score?

Your credit score is built up from a number of factors. It isn’t just about paying on time. If you’ve recently taken out credit or made a number of credit applications, that could be a factor that reduces your credit score.

You might not have been registered on the electoral roll, and or you’ve recently taken out credit that means you’re close to your limits on your credit commitments. That can have a negative impact on your credit score as well.

It’s less about keeping up with your credit commitments and more about making sure you’re not going close to or over your limits. More importantly, make sure the information is correct – being on the electoral roll can really contribute towards your credit score.

How do you view your credit score and credit report? How can I get a free credit report?

There are three main credit reference agencies out there and your credit score will be held by each of those credit reference agencies. Usually you’d need to sign up with them. Some, like Experian, offer free versions and a paid version which gives you a bit more data and guidance on how you can improve your score.

On the free versions they won’t give you the full, detailed report – you normally need to pay for that. We usually recommend a company called Checkmyfile, which compiles the main credit reference agencies into one report. Get a copy of this file and we can see across the board what’s on your credit reports.

Are Equifax, Transunion and Experian the three major credit reference agencies?

Yes, and if you’re applying for a mortgage they are the best ones to understand. All the major banks will use one or two of those three. So to increase your chances of getting your mortgage approved, getting those three via Checkmyfile is the easiest way.

How can a mortgage broker help?

Everyone’s different. Every situation is unique, and everyone has their own financial goals and challenges. There are so many banks and building societies out there and they all do different things. They tailor their products and deals to different types of people.

Some high street lenders prefer those who have never had a problem with credit at all, and offer them the most competitive deals. Then other lenders might have slightly higher rates or fees, but they’re willing to take on someone with a blemish or two on a credit report.

It’s a minefield – and even as a broker we will need to get into the details. We download their matrix and discuss it with the business development manager to get guidance. How many defaults are acceptable in the last three years? What’s the total balance? Are CCJs allowed?

If you’re worried that your credit score doesn’t look good, but your credit report shows you’re a great borrower that always makes payments on time, there might be other reasons that your score’s being dragged down.

A mortgage broker can recommend a lender that again will suit your circumstances – that might be a lender that doesn’t look at credit score at all, just the credit report. We can help you in lots of different ways. We’ll get the information we need about you to give you specific advice based on your financial goals and plans. Then you can decide if that is right for you and if you want to move forward.

Podcast approved by The Openwork Partnership on 02/01/2024.