Why Is My Loan Balance Wrong On My Credit Report?

Posted by George Coburn in Personal Finance on 7 May 2018 - George is a Credit Analyst at checkmyfile

One of the single most important pieces of information to appear on your credit file is the information relating to your credit agreements and how you repay them - with this information lenders can see your borrowing history across the last six years and use it to help them decide whether or not to offer you finance.

That’s why it’s always important to make sure the information on your credit file is showing up correctly, as it could affect your chances of getting accepted for finance if it’s wrong. One thing you won’t want to see in that case, is the balance of a personal loan appearing incorrectly on your credit report - but before you decide that it is incorrect, you need to understand how data sharing works.

You can see how your credit agreements are reported to lenders by checking your credit file. You can try checkmyfile free for 30 days, then for £14.99 a month afterwards which you can cancel online at any time.

How personal loans are reported

There are two main ways that a loan can be reported on your credit file:

Just as an example, imagine that someone takes out a loan for £10,000, at 3.5% APR, spread over 4 years. The total repayable over the term, including interest works out to a few pence short of £10,729.

The first method of reporting this would show the account as a £10,000 balance, which decreases as the loan is paid off in installments each month. In this example, the monthly repayment would be fixed at around £224, but only a proportion of that amount goes towards clearing the capital, with the rest covering interest charges. As you get closer to the end of the loan, more and more of your payment will clear capital since monthly accrued interest will be reducing.

The alternative way to report this would be to show a balance of £10,729 as this is ultimately what the consumer has agreed to pay back. In this case, since the balance represents everything the customer is going to have to repay, when a payment is made, the same amount is taken from the reported debt in its entirety.

Simply put, one balance shows the loan amount net of any remaining interest and the other shows the total remaining owed including interest. If your balance appears on your credit report as a higher amount than you might be expecting, double check to see if the interest owed is being reported too.

Effects of the two methods on your credit score

Some people may be concerned that the balance of a loan will have a detrimental impact on their creditworthiness if seen by lenders, but it is important to remember that a credit report is a reflection of how you manage credit rather than how much you owe.

For this reason, as long as someone is able to reliably make payments, the account will benefit their credit history irrespective of the lender’s chosen reporting style.

Why might a loan balance appear to be wrong?

Whenever you check the balances of your credit accounts on your credit report, it is worth remembering that the majority of lenders only pass information to the Credit Reference Agencies on a monthly basis, so if you’re expecting to see a balance decrease after making a payment, it might not be reflected until the following month.

As a result of this, credit agreement balances can appear out-of-date by anything between 4 and 6 weeks from when you made a payment. In the case of loans, you may see an amount owing that is completely different to what you were expecting as a result of the two different ways that a balance may be reported.

What about calculating affordability?

Lenders are increasingly under pressure to ensure that they don’t extend someone’s borrowing to a point where they are at risk of missing payments, so affordability checks are carried out to make sure a loan is suitable for a customer.

When a lender accesses your credit report for this information, they will look at the amount you pay towards your loan on a monthly basis – this allows them to work out your monthly commitments vs your monthly income.

As such, the way the loan amount is reported does not affect the outcome of an affordability check, but the amount you repay on a monthly basis will.

What if the balance is just plain wrong?

If the a loan’s balance looks completely incorrect on your credit file, your first port of call should be to contact the lender that you took out the agreement with to query it. Going straight to the source is often the most effective way to dispute incorrect information and in this instance it’s no different.

If they find an error, it is the lender’s duty to correct the information and re-submit it to any relevant Credit Reference Agency, which in turn will update the way the loan appears on your credit report.

Of course, the only way to check whether your balances are showing up as they should in the first place is by checking your credit report. Try checkmyfile free for 30 days, then for £14.99 a month afterwards, cancel anytime.

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