The relationship between Credit Scores and Credit Reports is pretty cyclical: one being strong usually means the other is equally good and you should have easy access to credit, right? Well, in a way. You might be surprised though how much of a role a ‘score’ really plays when it comes to borrowing.
Although Credit Scores do play a part in your ability to get credit, from a consumer point of view, it’s more important to view your Credit Report as a whole and assess the data it holds – because that’s exactly what lenders will do.
A Credit Score is simply a way of distilling that information into an easy-to-understand summary – but in truth, it’s vital to go further and look at each individual component.
checkmyfile does just that and lets you see what lenders see, with complete information from all three Credit Reference Agencies, not just one, giving you the best idea of how lenders will likely view your applications. You can try checkmyfile free for 30 days and then for just £14.99 a month afterwards, which you can cancel at any time.
When your score is useful
Many people are quite happy to condense their creditworthiness down into their Credit Score alone and generally speaking, as long as the scorecard behind the number is relatively accurate, it should give you a broad idea of how a typical lender will view you. If your score is high, it probably means your finances are in good order. If your score is low, it might be indicative of negative information on your Credit Report, or an absence of any kind of Credit History.
Limitations of a score
Without digging into the data behind your Credit Score, you’re only seeing part of the picture.
There are any number of reasons that your Credit Score could be lower than average but without helpful guidance, it’s easy to overlook. That means that your chances of improving your score and chances of being approved for credit will be limited.
It’s easy to put too much faith in a number. In truth, no one else will see the version of your Credit Score that you do – just yourself. Instead, they will assess the information found on your Credit Report to calculate their own score, which then determines whether you’ll be accepted or declined.
How do lenders generate their score?
As a rule, credit applications are assessed automatically using complex scorecards (and have been for a long time). It has been proven that a good Credit Scorecard (the algorithm that assesses the data) will make more accurate lending decisions (and in a fraction of the time) than a person could.
The data used to assess your application is shared by lenders and other organisations that you’ve had a relationship with in the past, in conjunction with several public databases such as the Electoral Roll and Registry Trust.
The way that you’ve managed past credit agreements (if you’ve had any) and your current levels of borrowing, as well as indicators such as stability and trend are used to assess what sort of ‘payer’ you will be. This includes whether you’re likely to pay back any money it lends you or if you are likely to default with a sum outstanding.
The level of ‘risk’ that a lender is prepared to take on that last point is the one that determines whether or not you’ll be accepted, and also the rate of interest that you’ll be asked to pay.
What your credit history says about you
Most lenders will pick apart your Credit Report data, focusing on the parts most relevant to them and the finance product you are applying for.
The data represents you, your addresses, financial commitments, Financial Associations and your credit history – how you’ve repaid credit accounts in the past. This allows lenders to get a feel for how likely you are to maintain a financial agreement going forward.
For this reason you will need to ensure that all information on your Credit Report is correct. Accuracy is of vital importance, even a slight error on an important piece of data could impact a credit application and you may not necessarily pick up on this if you focus on the score rather than the Credit Report itself.
On rare occasions, you might find an error on your Credit Report, which could have an impact on your creditworthiness if left unchanged. Usually, changing incorrect information on your Credit Report is simple, but without checking it first, you won’t know what issues, if any, might be waiting.
This is a key advantage of checking your entire Credit Report over just your score: a score might not indicate that there are any errors, but your Credit Report will show any errors immediately.
If you don't have a credit history
If you have held numerous credit agreements in the past, then a prospective lender should have plenty of information on which to base their decision.
If you’ve never felt the need to borrow or even take out a contract mobile phone, then it might be a different picture.
That’s because in the absence of past evidence about how you manage credit agreements, lots of lenders will be reluctant to approve an application – you’re essentially an unknown quantity. This situation can be exacerbated if you’re not on the Electoral Roll at your current address, as it means lenders don’t even have an address that they can confidently attribute to you.
While it may seem a bit of a catch-22 situation at first, it’s certainly not impossible to build a Credit History from scratch, even if you don’t want to use a credit card.
This serves as a good example of why it’s important to look at the data, and not just the score. You could see two people with exactly the same ‘score’ but very different reasons for it being what it is – one with a negative payment history and one with no payment history at all.
Which is more important?
In summary: the Credit Report itself is the most important thing when it comes to really understanding where your creditworthiness stands. Your Credit Score really is a useful tool and will give you a good indication of how a typical lender will view you at a glance, but it’s the data behind it that really matters.
To see all your data, you need to check your Credit Report. If you haven’t already, you can try checkmyfile free for 30 days, then for just £14.99 a month afterwards, which you can cancel at any time. You’ll get access to the UK’s most detailed Credit Report, with complete information from all three Credit Reference Agencies, not just one, so you know you’re seeing exactly what a lender will see.
Updated 12/02/2020 by Sam Griffin