Credit reference agencies (CRAs) gather information about your borrowing and repayment history, which lenders check when you apply for credit or a mortgage.
If you’re planning to get a mortgage, it helps to know how these agencies work and what information they hold about you. This article explains what CRAs do, why they matter for your mortgage application, and how to check and improve your credit record.
What is a Credit Reference Agency?
At its core, a credit reference agency is an independent organisation responsible for collecting, holding, and maintaining credit information about individuals.
They serve as intermediaries and data collaters, between individuals, financial institutions, and other companies seeking credit-related data. It’s important to note that CRAs do not make lending decisions or hold a blacklist of people. Instead, they provide accurate and up-to-date information to assist lenders in making informed credit decisions.
How Do Credit Reference Agencies Work?
Credit reference agencies work by collecting and storing credit-related data from a wide range of sources, including lenders, financial institutions, and utility companies.
They compile this information into comprehensive credit reports, which are then made available to companies and individuals upon request. These reports help lenders assess an individual’s creditworthiness and make informed decisions about granting credit.
To ensure data accuracy and prevent fraud, credit reference agencies employ robust data protection measures, including encryption, regular audits, and strict adherence to data protection laws.
The Main Credit Reference Agencies
In the UK, three primary credit reference agencies dominate the industry: Experian, Equifax, and TransUnion. Each agency has its unique features and sources of information.
Let’s take a closer look at them:
Experian
- Considered the largest credit reference agency in the UK.
- Provides credit reports and scores based on data from various sources, including banks, financial institutions, and public records.
- Offers additional services like identity theft protection and credit monitoring.
Equifax
- One of the leading credit reference agencies globally.
- Collects credit information from multiple sources, including lenders, utility companies, and the electoral roll.
- Offers credit reports, scores, and identity theft protection services.
TransUnion
- Formerly known as Callcredit, TransUnion is a major credit reference agency in the UK.
- Collects credit information from various sources, including banks, lenders, and public records.
- Provides credit reports, scores, and fraud prevention solutions.
What Information Do Credit Reference Agencies Hold?
Credit reference agencies hold a vast amount of information, providing a detailed overview of an individual’s credit history.
Here’s a breakdown of the types of data CRAs typically hold:
Personal Information:
Full name, date of birth, and current and previous addresses.
Electoral roll information for voter registration purposes.
Credit History:
Details of credit accounts, including loans, payday loans, credit cards, and mortgages.
Payment history, including missed payments and defaults.
Credit limits and outstanding balances.
Financial Associations:
Information on financial connections, such as joint accounts or shared debts with other individuals.
Public Records:
Court records, bankruptcies, Individual Voluntary Arrangements (IVAs), and County Court Judgments (CCJs).
It’s important to note that credit reference agencies do not hold information such as race, religion, or medical history.
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Do All Credit Reference Agencies Hold the Same Information?
Not all credit reference agencies hold the same information.
Some lenders may share credit data with only one or two of the three main CRAs. Consequently, your credit report and score can vary slightly depending on which agency is used by the lender.
It’s important to regularly monitor your credit reports from all three agencies to ensure accuracy and address any discrepancies promptly.
Do Credit Reference Agencies Share Information?
While credit reference agencies share information with companies and lenders, they do not share data with each other.
This means that the information held by Experian may differ from that held by Equifax or TransUnion. As a result, it’s essential to maintain consistent and accurate credit information across all three agencies to maximise your credit opportunities.
Who Regulates Credit Reference Agencies?
Credit reference agencies in the UK are regulated by the Financial Conduct Authority (FCA).
The FCA ensures that CRAs operate transparently, adhere to data protection laws, and maintain the integrity and accuracy of credit information. This regulation is essential for maintaining trust and confidence in the credit industry.
What credit information can be seen on a search?
The extent of the information visible will depend on the type of company and their reasons for accessing your report. For instance, a company conducting a ‘soft’ search will have access to less information compared to a ‘hard’ search.
It’s important to note that companies aren’t always required to obtain your permission to conduct a search on your credit report, but they are obligated to have a valid reason for doing so (for instance, if you’ve submitted a loan application with them).
However, there are certain details that remain invisible to companies. They are not privy to the identities of your current and previous lenders. Additionally, ‘soft’ credit searches on your report are not visible to them – these are only visible to you when you review your own credit report.
Mortgage Applications
When you decide to get a mortgage, there could potentially be two stages, each with their own credit search.
Decision in Principle / Agreement in Principle
Not everyone goes through this stage, but it is very common for first time buyers and people who probably have some existing credit issues. A Decision in Principle, or DIP, involves making a mini application to a specific lender, this can be organised by your broker. It (normally) involves a soft credit search and then the lender makes a decision based on this information. It shouldn’t affect your credit score and offers a good ‘heads up’.
Full Application
When you make a full application to a lender they will undertake a hard credit search, which will show on your credit report. This is why it’s important not to keep applying to different lenders within a short space of time, as each one affects your score.
When Do Credit Reference Agencies Update?
Credit reference agencies update credit reports on a regular basis, typically every 4-6 weeks. Regular updates are crucial for maintaining accurate credit information, as they capture recent credit activities and changes in financial circumstances. By regularly checking your credit reports, you can promptly address any errors or discrepancies that may affect your creditworthiness.
How Many Credit Reference Agencies Are There in the UK?
The UK is primarily served by the three main credit reference agencies: Experian, Equifax, and TransUnion. While these agencies cover the majority of credit-related data, there may be smaller, less well-known agencies that specialise in specific sectors or industries.
How Can You Improve Your Credit Score?
Your credit score is a numerical representation of your creditworthiness.
It provides lenders with a quick snapshot of your financial health and helps them assess the risk of extending credit to you. In the UK, credit scores typically range from 300 to 999, with higher scores indicating lower credit risk.
It’s important to note that different lenders may use different scoring models or have their own criteria for evaluating creditworthiness.
Therefore, your credit score can vary slightly between lenders and CRAs. However, the basic principles and factors considered in calculating credit scores remain consistent across the board.
Here are some tips to help you boost your creditworthiness:
Check for Errors:
- Regularly review your credit reports to identify and correct any errors or discrepancies.
- Contact the credit reference agencies to rectify inaccuracies promptly.
Register to Vote:
- Ensure you are registered on the electoral roll at your current address.
- Being on the electoral roll can positively impact your credit score.
Maintain Timely Repayments:
- Make all loan and credit card payments on time.
- Consistent, punctual repayments demonstrate responsible financial behaviour.
Manage Credit Usage:
- Keep credit card balances low and aim to use no more than 30% of your available credit.
- Maxing card limits can affect your score
- Pay more than the minimum each month
Build a Positive Credit History:
- Use credit responsibly and over time to demonstrate your ability to manage credit.
- Avoid closing old credit accounts, as they contribute to the length of your credit history.
Avoid Credit Repair Companies:
- Be cautious of credit repair companies promising quick fixes to your credit score.
- It’s best to take a proactive approach and manage your own credit responsibly.
