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How do credit reference agencies work?

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Credit reference agencies are the go-to places for banks and other lenders after they get requests for credit from the likes of you and me. This is why it’s important to know who they are and how they work.

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You need to know what they really know about you

Banks, building societies, credit card providers, even department stores don’t give you credit out of the kindness of their heart. 

Yes, they want your business, but they need some reassurance that the money they lend won’t disappear because you can’t afford to repay it. 

This is where credit reference agencies come in. Being licenced by the Financial Conduct Authority they’re a trusted depository of information about potential customers, which lenders use to decide whether to extend credit.

Who are the main credit reference agencies?

There are three main credit reference agencies in the UK, these are:

What do credit reference agencies do?

Credit reference agencies collect all the information on you that might figure in a lender’s decision on whether to give you credit, and how much. For example, you may or may not get a credit card or if you do, it’ll play into what interest rate you’ll pay. 

This information, collectively known as a credit report, includes previous addresses and whether you’re on the electoral roll. It includes details of any County Court Judgments against you, any bankruptcies and insolvencies. 

Credit reference agencies also report on glitches in your general financial life, such as whether you’ve been rejected for a loan or missed repayments. Banks and other lenders use a combination of both to verify your identity. They cross reference your age and residency to help combat fraud and money laundering, as well as helping them decide whether you’d be a risk to lend to.  

What is a credit score?

To make life easier for potential lenders, and for you, all of the data collated by the credit reference agencies is analysed and typically presented as a credit score and a rating, such as ‘poor’ or ‘excellent’. The higher or better the score the greater the chance of you getting the credit you want.    

Why should I get my credit report?

Your credit report may be a vital resource for companies, such as banks and credit card providers, but it makes essential reading for you, too. Here are some of the main benefits of getting your credit report:

  • To spot any errors: You can check that all the details relating to you are accurate, such as your postcode, and that there’s no record of missed payment that never happened

  • To spot fraud: As the credit report records financial activity such as applications for loans it’s a useful way to spot if someone is using your identity to fraudulently take out a loan.

  • Time to act: If you spy anything in your credit report that’s wrong, you can take action to get it resolved. The last thing you want is to only find out about a problem with your report after you’ve been turned down for a loan.

Why should I check my credit report?

The information a credit reference agency has relating to you is vitally important. It can make the difference between getting a loan or a mortgage, and you don’t want to be turned down due to a report error. 

This is the main reason why you should check your Equifax, Experian and TransUnion credit reports every six months or so. It’s worth checking all three files as there are often slight differences between them. This is because they don’t have the same relationship with all lenders, meaning one agency might have more up-to-date data on you than another. 

How do I access my credit report?

You have the right to request a copy of your credit report under the Consumer Credit Act 1974. Credit reference agencies will send you a copy of your credit report after you’ve made a request over the phone or in writing, although there might be a nominal fee of £2 or so. The easiest way is to use the online form provided on the credit reference agencies’ websites. 

Whichever way you make your credit report request you’ll be asked to provide the following information: 

  • your full name

  • any other names you have used in the previous six years (e.g. your maiden name)

  • your full postal address

  • your date of birth

Credit reports: a word of warning 

Although you are entitled to see your credit report, the reference agencies also offer subscription services that regularly update. They typically charge between £7.95 and £14.99 a month for these options, after an initial 30 days free.

It’s very easy to sign up to the charged-for credit file instead of requesting a free report, so take your time when visiting their websites.

Is it worth paying for a credit report?

While the free credit report will be good enough for many of us, some people will want a more in-depth study of their credit rating.

Depending on the credit reference agency you buy the report from, you could get some or all of the following:

  • a more detailed breakdown of your borrowing over the years

  • phone support to talk through any questions you have about your credit score 

  • a monitoring service to check your identity isn’t being scammed

  • a fraud helpline  

  • advice on how to improve your credit score   

How do I correct an error on my credit report?

We may all be human, but that’s small compensation if an error on your credit report means your credit score plummets and you struggle to get a loan or a mortgage.

Unfortunately, mistakes do happen, with erroneous mis-payments appearing or paid-off county court judgments not being erased. 

If you spot an error on one of your three credit reports contact the lender or company it relates to and ask them to correct it. If they agree with you, they should put it right within a month.

If they say they’ve got no record of any mistake on their part you’ll need to contact the relevant credit report agency. Provide as much evidence to support your case that a mistake has been made. Hopefully, after reviewing your evidence they’ll agree and amend the report. 

How to appeal to the credit reference agency

If the credit reference agency doesn’t concur, you can write a 200-word statement setting out your case. This will appear alongside the relevant section of the report, and while it won’t change your credit score, it’ll hopefully be taken into account by lenders. 

Incidentally, even if you don’t find a problem with one credit report it’s worth checking the other two, as they don’t all source their information in the same way.

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