Account types on credit files

Posted by Tom Blandford in Credit Reports on 2 December 2016 - Tom is a Credit Analyst at checkmyfile

A typical credit file is made up of numerous entries reported by different sources, each with varying contributions towards the individual’s credit score. One of the most important components that can be viewed by prospective lenders is the consumer’s payment history, so that it can be established whether or not the applicant is an acceptable risk.

Each entry within the payment history is reported to the credit reference agencies by their relevant lenders and can be further divided up into several different account types.

Credit Cards

A staple credit account that appears on credit files – by making reliable monthly payments, a positive payment history can be demonstrated which will contribute towards a credit score as long as the account remains reported. Some high-APR credit cards can be obtained by those with adverse payment history to bolster their credit ratings when they may be declined by lenders with more stringent requirements.

Bank accounts

Some may be surprised to find that their bank accounts are reported to the credit reference agencies even though they are not usually regarded as credit accounts. For this account type, it is the overdraft facility that is the main focus of the information reported to the agencies. The balance for this account indicates how far into the overdraft the consumer is and any payment history will show how the overdraft has been utilised, if at all. As a result, bank accounts that lack overdraft facilities are not usually reported to the credit reference agencies.

The amount of money in the account is not reported to the agencies as it does not relate to the use of a credit facility, so savings wouldn’t have any positive or negative impact on a credit score.

Loans

Loans can appear for varying lengths of time on credit files, and in different forms. The most common is a personal loan, however loans can also relate to other forms of credit such as phone contracts or insurance if they are paid for on a monthly basis. Payday loans are also included under this umbrella term of ‘loans’ – as they tend to be open for very short terms, their positive credit score contributions may not be as significant in the eyes of a prospective lender as that of a personal loan from a high street bank.

Due to the type of borrowing, payday lending can also be seen in a negative light by many mainstream lenders, as they feel that it may imply that the borrower is in some financial difficulty already.

Utilities (Energy, Water, Telecommunications)

Everyday bills such as gas and electricity often appear on credit files. As these bills would not be paid for ahead of time, they can therefore be perceived as a form of credit. Additionally, unlike bank accounts or credit cards, it is more common for utility/communications suppliers to only report to one or two of the credit reference agencies. This can then result in differences in the information held by each of the credit reference agencies.

Mortgages

For those monitoring their credit files, a mortgage is often the ultimate goal. As a mortgage is typically reported over several decades, a well maintained mortgage can be a significant influence on one’s credit score. Furthermore, some lenders consider homeowners a lower risk, so a mortgage can increase an applicant’s chance of obtaining credit purely based on its presence on a credit file.

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