Why your credit rating is important

Published  22 May 2024
   3 min read

Your credit rating is important as lenders use it to help decide if they’ll give you a loan or credit, how much they’ll lend you and how much interest they’ll charge you. 

So if you’re looking to take out a credit or store card, a loan or mortgage or any other type of credit, the better your credit rating the more chance you have of getting a good deal.

What is your credit rating?

Your credit rating is based on your credit history. When you apply for credit the lender will get a credit report on you from a credit reference agency, and will also look at your application plus any other information it holds on you to help it come up with a credit rating for you.

There are three main credit reference agencies in the UK (Experian, Equifax and TransUnion) and each of these will have a credit file on you. They look at how well you manage credit and how good you are at making repayments.

What’s in your credit report?

Your credit report typically lists:

  • Any credit arrangements you have such as bank and credit card accounts or loans and utility company debts. It’ll show if you make your repayments on time and if you’ve missed or been late with any of your repayments. The record goes back at least six years.
  • Details of anyone you’re financially linked to such as anyone you’ve jointly taken out a loan with.
  • Any County Court Judgments (Decrees in Scotland) against you, as well as if you’ve had your home repossessed, been made bankrupt or had any individual voluntary arrangements. These can stay on your report for six years.
  • Any bank overdrafts you have.
  • If you’re on the electoral register.
  • Your name, date of birth, current and previous addresses.
  • If you’ve committed fraud.

Your credit report doesn’t include details of your salary, religion or any criminal record you might have.

Employers and landlords can also check your credit report, although they’ll usually only see public record information such as your details on the electoral register, if you’ve been insolvent or have any County Court Judgments against you.

Utility companies, insurance providers and mobile phone companies also may check your record if you want credit from them (such as paying your bill in arrears) rather than paying upfront.

How to check your credit report

All credit reference agencies are required by law to supply you with a free copy of your credit report. You can get your credit report direct from EquifaxExperian and TransUnion. You can find out more about how to do this from the Information Commissioner’s Office.

It’s often worth getting a copy from all three of the main agencies if you’ve not applied for credit before or haven’t checked your credit record recently. This is because each agency may hold different information on you.

You can also get a more detailed credit service (including your credit score) from the credit reference agencies. You can usually get a free trial of the service (typically 30 days) and after this you have to pay a monthly fee for the service. For more details contact the credit agencies direct.

How to correct mistakes on your credit report

If you find any mistakes on your credit report you can raise a dispute with the credit reference agency. It will contact the company that recorded the information – this could be a loan or credit card firm. While it carries out an investigation a marker should be put on the information so that if you apply for credit elsewhere prospective lenders know the information is disputed.  If you're unable to resolve the problem contact the Information Commissioner’s Office, which is responsible for ensuring that information held about you is handled properly.

You can also complain to the Financial Ombudsman Service if you’ve already complained to the credit reference agency and you’re not happy with its response. Before you can do this, you must have given the company eight weeks from when you complain to investigate and get back to you


How to improve your credit rating

The better your credit rating the more likely you are to be offered a loan or credit at a reasonable rate. There's no easy way to do this but there are things you can do to make your score as high as possible.

  • Start by making sure the information in any loan or credit application and with the credit reference agency is complete and accurate. Discrepancies can lower your rating and make it less likely you’ll get credit.
  • Pay your bills on time.
  • Make sure you’re on the electoral register as this will boost your credit rating. You can check with your local Electoral Registration Office if you are registered to vote. To find your local office visit the gov.uk website. Also, the longer you’ve been at your address, with your bank and in your job, the better your credit rating is likely to be.
  • Lack of information on your credit report can also lower your rating. Ideally, lenders want to see how you’ve handled credit in the past, so if you haven’t taken out loans or other credit in your name, you may have little or no credit history, and this can result in a lower credit rating.
  • Removing people you’re no longer linked to financially may also help. You can ask the credit reference agency to do this for you.

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