Credit history

Before a bank or other company agrees to lend us money, they try to work out if we are likely to pay back the money. Because they usually do not know us, the way they do this is by asking us for information about ourselves, for example where we live and what sort of job we have. Then they look at this information together with our credit history to make a decision on whether to lend us the money or not.

Step 1: Understanding your credit history

What is a credit history?

Our credit history is made up of information about the money we have borrowed in the past and how we have paid it back. This comes from a number of places, such as banks and loan companies as well as public records of court judgements, bankruptcies and repossessions. A credit history usually goes back six years.

Credit histories also contain information about applications we have made to borrow money. This information usually stays on our file for two years and it is generally considered that lenders may be reluctant to lend us money if they can see that we have applied for lots of services, such as credit cards and loans in a short space of time. This is because we could be running up more debt than we can handle if we take out too many products at the same time.

Common misconceptions about credit histories

There are a lot of misconceptions about credit histories, which can be confusing. Some of the more common misconceptions are:

That we all have credit ratings. This is not the case. We just have a credit history and it is up to banks and other lenders to look at this information and decide if they want to lend money to us
That we can get blacklisted. There is no credit blacklist that people get added to if they do not have a good record of paying money back. This is a slang term for a bad credit reference
That the actions of other people in our house or former residents have an impact on our ability to borrow money. This is not true. Your credit history only contains information about you and other people that you have a financial connection to, for example if you have a joint bank account, mortgage or credit cards.

The role of credit reference agencies

Our credit histories are put together and held by companies called credit reference agencies. They create reports from the information they have on us and sell them on to banks and other lenders. There are three main credit reference agencies. See the Information Commissioner's website for more information on these credit reference agencies (link opens in a new window).

Why credit histories matter

Banks and other lenders tend to base lending decisions on credit histories. For this reason, the information contained in our credit history has an enormous impact on whether we can do anything, from opening a bank account or getting a credit card to taking out a mortgage or an interest-free loan on something like a new sofa or computer. Our credit history also influences the types of credit deals that we are offered. For example, if someone agrees to lend you money but they think you do not have a very good record of paying it back, they are likely to charge you more for borrowing the money.

See our sections on Borrowing money and Interest to understand more about the costs involved in borrowing money.

Step 2: Looking at your credit history

By law, credit reference agencies have to show us the information they hold on us and it is simple to get hold of. You can write to the agencies and ask for a copy of your credit reference file. Your letter needs to include:

Your full name as well as any other names you have been known by, such as your maiden name
The full address and postcode of where you live now and anywhere else you have lived in the past six years
Your date of birth
A cheque or postal order for £2 made payable to the credit reference agency
You can also see your file online, but this usually costs more.

The Information Commissioner’s Office has the postal and web addresses for credit reference agencies (link opens in a new window).

It’s important to note that there are three main credit reference agencies and the information that they hold on you might be slightly different. If a company has refused you credit, you can ask them to tell you which credit reference agency they used. Otherwise, you may need to look at the information that all three hold on you to get a complete picture of your credit history.

Step 3: Why would I want to see my credit history?

You may want to find out the information that credit reference agencies hold on you for a number of reasons.

If you have been turned down when you asked to borrow money, it can be helpful to look at your credit history to understand why
If you want to borrow money, for example by taking out a mortgage, it is useful to know in advance what your credit reference file contains.

Step 4: What if the information held on me is wrong?

The information that credit reference agencies hold on you can sometimes be wrong. If it is, you could end up getting turned down for a loan even though you have behaved responsibly in the past. It may be wrong because of a mistake, but also because of fraud, for example if someone manages to take out a loan in your name and then does not pay it back.

Correcting mistakes

If you think some of the information in your credit reference file is inaccurate, there are a number of things you can do:

If you share finances with someone, your credit reference file will link you to that person. Sometimes people find that their file still links them to someone that they no longer share finances with, for example an ex-partner. On occasion, the file may also link someone to another member of their family who they do not share finances with. In both cases, you can write to the credit reference agency and ask to be disassociated from that person
If you think some of the information is wrong, for example the file says you have not paid back a loan on time when in fact you have, you should contact the company that lent you the money. If you are right, they should then update their internal records and notify the credit reference agencies
You can also contact the credit reference agencies directly if you think information is wrong. The agency must write back to you within 28 days to tell you what action they have taken
If you cannot resolve a situation, you have the right to attach a 200 word Notice of Correction to your file, which lets you explain your view on the disagreement. This is attached to your file so anyone looking at it will see it
If a credit reference agency does not reply to you within 28 days or will not attach your Notice of Correction, you should seek help from the Information Commissioner’s Office (link opens in a new window)
If there are things on your credit history such as attempts to borrow money or evidence of unpaid debts that you don’t know anything about, you may be a victim of identity fraud. This is a type of fraud where someone pretends to be you so that they can do things like run up debts in your name. If you think you are a victim of identity fraud, you need to contact the credit reference agencies immediately.

Step 5: Would you like to know more?

The Information Commissioner’s Office has a leaflet called Credit Explained (link opens in a new window PDF294kb) that goes into detail about how companies make decisions about lending money and how to see your credit reference file and deal with it if things go wrong
Money Advice Service website has information on how banks and other lenders decide whether to lend to us (link opens in a new window)
Directgov has information on what to do if you have been turned down for credit (link opens in a new window)
CIFAS, the UK’s fraud prevention service, has a leaflet explaining what identity fraud is (PDF, 260KB) (link opens in a new window) and giving guidance on what to do if you are a victim.

Last updated: 29 September 2010

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