The Three UK Credit Reference Agencies You Need to Know About

The 2020 Credit Score Guide – Chapter One

A recession is looming and you want to know how to get your finances in order – fast! But before we dive into the specifics of how to repair your credit, it’s important for you to understand how your credit rating works. In this chapter, we’ll look at the three biggest credit reporting agencies in the UK, what their roles are and how they affect you.

A young lady is applying for credit with the help of an experienced colleague

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In this article, we look at the role of Experian, Equifax and TransUnion and how they operate. You’ll be able to read about:

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What would life be like without credit reference agencies?

Although you might worry about the thought of credit reference agencies holding information on you, they have a crucial role to play. Without them, every time you applied for credit, the financial institution would have to do its own check on your creditworthiness. Not only would this slow down your application but it might not be so thorough and accurate. Making decisions without all the necessary information means companies might make the wrong decision about approving or refusing credit. Also, it would increase the risk of fraudsters getting away with identity fraud – a growing problem in the UK.

The important role of credit reference agencies

Credit reference agencies collect and collate all the information held about you as regards your management of credit. Their data reveals how well you’ve managed your personal finances in the past as well as the financial commitments you have at present. From this financial history, credit providers can decide how great a risk you represent if they were to lend you money. If you’re looking for ways to improve your personal finances, check out the Personal Finance section of our blog! We cover all sorts of topics, such as credit cards, pensions and more!

CRAs are independent bodies and don’t ‘own’ this information about you. Instead, they hold the information provided by lenders and from public records and share it with financial institutions when you make a credit application.

A young man who is looking to apply for credit is checking his credit score online at his office

How Often is Credit Report Data Updated?

Credit Reference Agencies typically update their data every 4-6 weeks with information supplied by lenders and other companies who you have a financial connection with. As well as banks and building societies, these could be utility companies, mobile phone operators, social housing providers, credit card providers and major retailers.

Information held about you is bound by the terms of the 1998 Data Protection Act. This means you must give your permission for someone to access information about you. It’s strictly forbidden to check another person’s credit record.

The role of CRAs in fighting crime and debt recovery

Apart from checking information for any inconsistencies and mistakes, CRAs have a role to play in verifying someone’s name and address to prevent identity theft and fraud. They are also used to combat money laundering and help in the recovery of debts. Their data is consulted by government bodies to check entitlement to certain benefits and to recover unpaid taxes and other such money owed.

How similar is the information held by CRAs?

Lenders should share their information with all 3 credit reference agencies. However, this isn’t always the case. You might find that the data held on you by the 3 main agencies is slightly different. This can have an impact on credit applications since it’s quite possible that you have a better score with one agency compared to another.

Lenders don’t always use the same agencies either when carrying out a check of your creditworthiness. Some financial institutions use one agency whilst others use 2 or might even consult all three. This is worth knowing before you apply for new credit.

It is possible that the data held on you by the three main agencies is slightly different. This can have an impact on your credit application.

What is the best credit score to have?

Another difficulty with the 3 credit reference agencies in the UK is that there’s no such thing as a universal credit score. Each agency has their own way of ‘scoring’ individuals and what weighting they give to the various pieces of information.

Experian uses a scoring system of 0-999; Equifax have a scale that goes from 0-700 while TransUnion scores range from 0-710. This means that you should pay less attention to the number itself and more to where it falls within the range. For example, a score of 560 is considered ‘poor’ for Experian while it falls in the ‘excellent’ band for Equifax.

It is strictly forbidden to check another person’s credit record

How much power do CRAs have?

Another thing to bear in mind is that CRAs have no personal axe to grind. They present the information as it’s been supplied to them without any comments (positive or negative). They never recommend whether a credit provider should lend you money and nor do they possess a blacklist.

The decision about whether to approve your application is made by the lender alone. Of course, your credit report will be one of the factors they consider but it won’t be their sole criteria. They’ll also take into account your application, your affordability and the personal details it contains. In fact, a recent analysis of over 15 million applications found that most applications are declined based on technicalities and not necessarily credit scores.

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Conclusions about the UK’s main credit reference agencies

Although the idea of CRAs might conjure up pictures of ‘Big Brother’ watching everything we do, they play a crucial role in the financial industry. As long as they ensure that the information held about us is accurate and up-to-date, they can be used to speed up credit applications and promote responsible lending.

FAQs on credit reference agencies

How do I get a credit reference?

A credit reference can be an entity that has previously given you credit or sold you a financial product. In essence, a credit reference can be someone who had a financial relationship with. This could be, for instance, a credit card company, a personal loan lender, a local bank or investment firm, or even a previous landlord.

Can requesting a credit reference hurt my credit score?

When you apply for credit or financial products, the lender that you have applied to will check your credit history to ascertain the health of your finances and ensure that you will be able to meet your repayments. If you are applying for a loan online, then your lender will be focused on your credit score. If you are applying for a job, then your employer may be interested to inspect your credit report for your past behaviour with your finances.

What is trade reference on a credit application?

A trade reference on a credit application regards businesses, and not individuals. It is used to assist lenders and businesses make decisions about granting or extending credit to applicants. This is a particular reference used for businesses in order for lenders to ensure that customers pay their debts in full and on time.

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