Opinion

What does your credit report mean?

Whether you’re thinking of getting a credit card or you are beginning to look at buying your first home and want a mortgage, you can access a free credit report by following this link.

This credit report is used to detail your specific credit history – everything from your credit card payments, overdrafts, mobile phone contract or mortgage over the years – allowing lenders to gain an accurate snapshot of your financial stability by looking at your various accounts and repayments. This helps them to make an informed decision on whether it is safe to accept your application for further credit.

This information is further used to decide on how much they should lend – for example, if your credit card statements are paid on time and you didn’t cancel your 12 month gym membership after 2 months you could be offered a higher credit limit with lower interest rates than someone who has consistently failed to pay their mobile phone bill on time and is in heavy credit card debt.

All of this information will be then used to assess your suitability and any potential risk associated with offering you credit. It’s important to note that you do not have a single credit rating that is used across the board – as such you could end up with different scores for different products depending on what it is you’re applying for, whether it’s a mortgage or credit card or loan.

When you receive your credit score, it can range widely, with the full scale going from 0-850 points. The majority of scores tend to fall into the 600-700 range – adequate to good. If your credit report indicates a score of 700 and above, you are what is called a ‘prime candidate’ and as mentioned you will receive much better interest rates on loans. For first time home buyers looking to apply for a mortgage, they can sometimes be confused about the fact that their score isn’t very high – this is perfectly normal as you are essentially just starting to build your credit history, and the score reflects where you are financially at that moment in time and could change again within six months. A general indication of credit report scores breaks down as:

720 – 850 = Excellent
690 – 720 = Good
650 – 690 = Adequate
350 – 650 = Poor
000 – 349 = No credit

Outside of using them to apply for credit, credit reports are now also being used effectively to counteract the threat of identity fraud. By continually monitoring your credit report, it can help you spot any criminal activity pertaining to your identity including:

*Using your details to open new accounts
*Taking over/depleting your existing accounts
*Using your details to apply for a variety of credit cards and loans as a quick cash grab

Keeping an eye on your credit report enables you to spot suspicious activities such as these and deal with any problems before they start to get really serious.

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