Your credit report explained Why your credit report matters

Person applying for credit card

The information in your credit report will affect whether you're accepted for credit, and the interest rate you pay

Your credit report matters because the information held in it will directly affect your ability to get credit. Whether it’s a mortgage, a personal loan or a credit card you’re after, no lender will consider you as a customer without first finding out about your credit history.

The truth about credit scores and credit ratings

Credit scores (also referred to as credit ratings) aren’t single numbers that apply to individuals. It’s a myth that everyone’s financial dealings be condensed into a figure that denotes whether or not they are credit-worthy!

In reality, things are more complicated. Credit scoring does happen, but lenders use their own – highly secretive – systems to assess how risky, or profitable, a customer you are likely to be.

The information contained in your credit report, as well as what you tell a potential lender on your credit card or loan application form, will be used in their calculations. So will any other details they have about you – such as how you operate your current account, should you have one with the same bank.

The final ‘score’ or ‘rating’ you are awarded won’t be communicated to you, and will only be relevant to the lender who accepts, or rejects, your application for credit.

Because lenders use individual criteria to assess people, and they may be looking for different kinds of customers, it’s quite possible that while one lender will reject you for a credit card or loan, another might accept you. This applies even when they are accessing exactly the same version of your credit file, through the same credit reference agency.

How your credit report affects rates

The information in your credit report will not only affect whether a lender decides to offer you credit; it might also affect the interest rate they expect you to pay on your borrowing.

Typically, customers who lenders consider to have excellent credit ratings will be offered the best deals and lowest APRs. Particularly since the credit crunch, consumers looking to get 0% balance transfer deals or credit cards with 0% on new purchases offers have needed pretty spotless credit histories.

Having a blemished credit report could mean you are offered a worse rate on a credit card or loan than you originally applied for. Lenders are only required to offer their advertised interest rate to two thirds of successful applicants for credit, meaning the remainder can be offered less attractive deals. Others will be rejected altogether.

For all these reasons – and to help protect yourself from fraud - it’s crucial to check your credit report regularly. Which? Money experts recommend that you look at all three versions of your credit file at least once a year.

Elsewhere in this guide, you can find information on what factors can cause you to have a bad credit rating and what you can do to improve your credit rating.

Protecting yourself from ID fraud

Finally, it's important to remember that your credit report could reveal illegal activity taking place in your name - such as fraudulent applications for credit that use your personal details. 

Regularly checking your credit report is a key way to protect yourself from ID fraud, so make sure you do so at least once a year. 

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