Britain is growing into a mountain of consumer debt, with some 74 million credit cards in circulation, more than in any other EU country and debts reaching 56bn pounds.
For some of these borrowers, the view from the top of the mountain won't be great. These will be the ones who are charged higher annual percentage rates (APRs) by lenders, or who struggle to be accepted for new credit all, or who find they are now turned down for mortgages.
The problem? They are judged "high risk" after the lenders have checked the information held on them, and on all borrowers, by credit-reference agencies.
A poor credit rating could be down to a bad track record on the part of the consumer in settling debts, or having no track record as a borrower. It could also be a result of criminal activity or a simple administrative error by a lender. As a result, more and more people now check their file by contacting a credit agency such as experian. Over 2.3 million did so last year, paying just £2 for a paper copy.
Most apply for a report after being turned down for credit and to check for fraud. Criminals who hijack your identity to buy goods in your name can cause damage to your credit file that takes 18 months to clean up. Preying on such fears, a number of debt-management firms have begun to offer "credit repair" services for your file in return for a small fee. This type of confusion has helped contribute to a number of myths about the relationship between you and your credit rating, when in most cases there's nothing you can't sort out yourself. Here we address some of the most common concerns.
Do I have a single rating that all lenders use?
No. Each lender looks at your file and uses the information to make its own calculations on your "risk" as a potential customer.
Your "points" score is based on your past record as a debtor and your current behaviour, but different lenders will interpret your file in different ways.
One bank might take the view that if a customer has three credit cards, and rarely misses the minimum monthly repayments, then that is a "positive" and worth points as it shows they are adept at juggling their resources. But another lender might mark this down as a "negative", as evidence that the customer has built up too much debt.
Much depends on the sort of person an individual lender wants - and the type of product, says Jill Stevens of Experian, one of the big credit agencies (together with Equifax and Callcred-it). "You could get one score if you applied for a credit card, but a different score if you applied for a personal loan from the same lender."
Can I be blacklisted?
Contrary to popular belief, there is no such thing as a credit blacklist detailing people who shouldn't be lent money.
Credit agencies give no opinion on whether lenders should accept your business' they simply provide the information on which decisions are based.
Will shopping around for credit affect my status?
Each time you apply for credit, a search - or "footprint" - stays on your file for at least 12 months.
"Apply for too many credit agreements in a short period and lenders may interpret this as over-stretching yourself financially," says Neil Munroe, a director at Equifax.
Ms Stevens at Experian says that if you are enquiring about a quote - the rate you might be given by a lender on a credit card, for example - and the request entails a check with the reference agencies, make certain that it's recorded as a "quotation search" and not as a credit application search. The latter is recorded on your file, but the former is not.
She adds that an abnormally high number of searches in your records might suggest you have been a victim of fraud.
Can adverse data be wiped from my file for a fee?
Be wary of any company promising to "clean up" your credit report as you can't "put right" a rating.
"Many firms offering to do this are debt-management businesses, some of which charge you a lot and deliver little benefit," says Stuart Glendinning at the price-comparison service Moneysupermarket.com.
What about genuine mistakes?
Tell an agency immediately if you discover inaccurate information on your file, as details need to be amended or deleted.
It will then contact your lender to start an investigation, during which time you can add an explanatory "note of dispute" to your file for others to see.
Separately, if you feel an expensive divorce, say, has created a misleading impression of your creditworthiness, you can add a "notice of correction".
Alternatively, a joint finance agreement with a past partner may also affect your credit rating. A "notice of disassociation" on your file will explain to lenders that you no longer have any financial relationship with that person.
