Credit reports: How they work and tips to improve your score

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Who better to help you understand more about credit reports and how to boost your score than those working in the world of mortgages?

Senior mortgage brokers, Sonya Matharu and Gemma Bennett, recently wrote an article for What Mortgage to help you up your game when applying for a mortgage, loans or credit...

What is a credit report?

A credit report is essentially a financial report that tells the story of your borrowing and repayment history, writes Sonya Matharu

Compiled by credit bureaus or credit reporting agencies, they gather information from lenders, credit card companies, and other financial institutions that you’ve had a financial relationship with.

It’s packed with all the juicy details about your credit accounts, not just about credit cards, loans and mortgages—but any payment history, credit limits or outstanding balances too.

A credit report is like a background check for your finances, so they provide a mine of information for landlords, lenders, and anyone looking to extend you a line of credit—whether that’s with a phone contract, a car lease or utility accounts.

It will form the basis of whether you’re accepted or rejected for any type of credit, including mortgages and what the interest rate will be on any repayments.

Credit Reports and Credit Scores are different things. Your credit score gives you an overall result to signify your credit health—but it doesn’t tell the full story.

That part is told by your credit report, which details your full financial history. Whilst your credit score is important, it’s not the only thing that matters, so don’t be disheartened if yours is still growing.

How to improve your credit score

Here are some ways to make sure your credit report is optimal for you, writes Gemma Bennett

  1. Check you are on the electoral roll

Whilst it’s certainly not impossible to get a mortgage when you’re not on the electoral roll, it may limit your lender choices or flag up the need for more documentation before an offer is secured.

  1. Use a credit card, responsibly

A credit card is an easy and accessible way to show a lender you are responsible with money.

Use this credit card each month, for example to pay for petrol. Then each month pay it off in full. This will build you credit history without creating a high debt balance.

Also keep a limit on your credit card spending. Usually, a lower percentage will be seen positively by lenders, and will increase your credit score as a result. If possible, try and keep your credit utilisation below 30%.

  1. Check for errors in your credit report

Even small mistakes, such as a mistyped address, can affect your score and could cause issues when you apply for a mortgage.

Regularly check the information on it is accurate and up to date. If you do spot a mistake, contact the provider directly and ask them to change it.

Monitoring your credit file regularly will help you spot any fraudulent activity, too.

  1. Stay up to date with utility bills

So much emphasis is put on credit cards and loans when it comes to credit reporting. However, a missed payment to a utility bill can be an instant decline for a mortgage lender in some cases.

Perhaps you’ve moved house and a utility company has sent a bill that you didn’t think was due. Rather than just not paying it because you’ve moved address, call the company and settle the issue, otherwise it will be noted as a default on your report and utility defaults are taken seriously.

Along with mobile phone agreements which often show up as a loan. It all counts as conduct.

  1. Don’t panic if you have a missed payment

Mistakes happen and missed or late payments are part of real life. The sooner you can rectify this by talking to the company in question and ensuring all payments up to date the better for your future of lending.

If any issues emerge on your report, do speak to a broker. As we always say lender’s criteria varies greatly. And their criteria and appetite around credit history details, is the most varied element I have ever known.

This article is an extract of a feature published on What Mortgage. To read the full article, click here.

Gemma Bennett and Sonya Matharu are both senior mortgage brokers for The Mortgage Mum 

You can find out more about Sonya and Gemma, their jobs and how they help people with their mortgage journey here.

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Image: Photo by RODNAE Productions / Pexels