Revealed: the shocking state of our credit records

Our personal credit records are in a dire state, according to recent research that shows 7 million credit applications were refused in the UK during the last 12 months.

A further 7 million applications for other accounts and agreements were also turned down because of poor credit rating, according to the Debt Advisory Centre. So why are our credit records so bad?
Credit is an important part of everyday life and the record of your past behaviour towards it can affect everything from being approved for a mortgage to your chances at a job or suitability for a tenancy agreement.

The state of our credit records is a very real concern; in fact the research found that 9 million people avoid applying for things because they're worried about failing a credit check.

Rejected for credit
Personal loans report the highest number of rejected applications in the past year (1.6million), followed by credit cards (1.2million), overdrafts (0.9million) and payday loans (0.7million) and first mortgages (0.6million).

But credit applications aren't the only place where a poor credit rating can be a problem. In an estimated 7.3 million cases, people's credit reports held them back in other ways.

Around 2.3million were refused a bank account; 1.8million couldn't take out a mobile phone contract and 1.2million were prevented from signing a property rental agreement. In 1.1 million cases a poor credit record damaged peoples chances at a job, while 0.9million had trouble taking our home or car insurance.

How to improve
"Credit ratings are a major part of modern life," said Ian Williams of Debt Advisory Centre. "These figures show just how much a poor rating can get in the way, and not just when you're applying for credit.

"So while it's good that people are wary of damaging their credit rating even further, what's even more important is taking steps to improve it: for example, avoiding further borrowing, trying to clear the debts that you can, and setting up Direct Debits to make sure the payments go out on time."

It is also crucial to regular monitor your record to ensure that it is update to date; that no mistakes have been made and you've not fallen victim to fraud. Read our guide on how to decipher your credit record and rectify any mistakes.

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Revealed: the shocking state of our credit records

Figures from charity Age UK show that 29% of those over 60 feel uncertain or negative about their current financial situation - with millions facing poverty and hardship.

Even though saving for retirement is not much fun, the message is therefore that having to rely on dwindling state benefits in retirement is even less so.

To avoid ending up in this situation, adviser Hargreaves Lansdown recommends saving a proportion of your salary equal to half your age at the time of starting a pension.

In other words, if you are 30 when you start a pension, you should put in 15% throughout your working life. If you start at 24, saving 12% of your salary a year should produce a similar return.

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How to dispute your credit record
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Revealed: the shocking state of our credit records

Don't wait until you need to apply for credit to view your credit record – do it now so you know where you stand and can deal with any disputes. When applying for credit, you give the lender permission to view your record, so it makes sense to view it yourself first.

You can access your record via any of the main credit agencies in the UK. By law, all the credit agencies are required to provide you with a one-off copy for just £2 so don't be hoodwinked into signing up to pay a monthly fee.

Your report shows what credit accounts you've had and whether you've made repayments on time and in full. According to Experian, items such as missed or late payments stay on your credit report for at least three years, while Court Judgments for non-payment of debts, Bankruptcies and Individual Voluntary Arrangements stick around for around six years.

Your credit report shows the current address at which you are registered to vote as well as details of other addresses you've been linked to in the last six years. Another section lists people you have a financial connection with, such as a joint mortgage. When you apply for credit, lenders are able to look at their credit history as their circumstances could affect your ability to repay what you owe.

Scrutinise your record to make sure there are no mistakes. Even a minor error such as an incorrect address or wrongly linked account could hinder your chances of being approved for credit so make sure all your details are correct and that all your borrowings are on record. If there is a discrepancy, contact the three main credit agencies to get it corrected.

A default notice is note that a lender puts on your credit file if you fall behind with your payments. It is a warning sign to future lenders about your reliability to repay credit and could mean that they will be less likely to lend to you or will increase the interest rate.

If the default notice is incorrect, perhaps because you have repaid the loan in full or did not take out the credit and suspect that you have fallen victim to fraud, you can apply to have a default notice removed. A default notices will only be removed if it is factually incorrect – not simply because you are embarrassed by it.

Start by writing to the agency asking it to either remove or change the entry that you think is wrong. It will investigate the matter and find out whether you have been the victim of ID theft or a bank's mistake.

Within 28 days from receipt of your letter the agency should tell you how the bank has responded. If the bank agrees to change the entry, they will authorise the agency to update their records. They should also send updates to any other credit reference agencies they use.

You can also contact your lender directly to query a mistake. If the lender agrees to the discrepancy, ask them to confirm this in writing on their letterhead and send a copy to the agency, asking them to update your file.

If you are unhappy with the response or would just like to explain a missed payment on your file you can send a Notice of Correction. This is a statement of up to 200 words that will be added to your file. Although lenders don't have to take this information into account, it at least gives you the chance to tell your side of the story.

Experian states that agencies will also help you escalate the dispute to a third party arbitrator if necessary, such as the Information Commissioner's Office.

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