Borrowing money can be a complex business these days. Whether you’re applying for a mortgage or a personal loan, want to take out a new mobile phone contract, car finance or rent a place to live, your prospective lender, company, employer or landlord will first want to carry out essential checks to establish your ‘creditworthiness’. Why?
Well, any company you are considering borrowing money from will want to be reassured that you’ll be able to pay back the debt, in other words that you’re not a credit risk. In order to help them make a final decision on whether to approve or decline a loan to you, they are likely to turn to one of the major UK credit reference agencies for information.
What is the role of a credit reference agency (CRA)?
These are companies that collect and store public and credit related information about your financial behaviour and credit history over the last 6 years. The results are compiled into a credit reference file – pretty much everyone has one. CRAs are licenced by the Financial Conduct Authority, so it’s all above board and your data are perfectly safe. If you wish, you can request access to your file at any point.
There are 3 main CRAs in the UK: Equifax, Experian and CallCredit. They all basically do the same thing, using the information on your credit file to compile your personal credit score – and it’s this ‘score’ or ‘rating’ that lenders use to determine whether your credit application is successful. You can find out more about what makes up your credit score in helpful guides such as this one from GuarantorLoansuk.
Why do you need a good ‘credit score’?
Back in the old days, getting a loan was a much simpler process. You would go and see your bank manager whose decision to lend or not to lend would be based on a variety of factors, your credit score being one of many.
These days, with increased computerisation to help deal with the sheer volume of business and the considerable commercial risks associated with a bad lending decision, financial companies are more cautious. Now, they largely rely on your credit score to help them determine your creditworthiness.
In practical terms, a higher credit score means that you will find more lenders willing to give you credit, and at a lower interest rate. A lower score, on the other hand, may leave you with a restricted choice of lenders whose terms will be more expensive.
What information about you is held by the CRAs?
Credit reference agencies obtain their data from a variety of sources including banks, credit card companies and mortgage lenders, as well as public records such as the Electoral Roll (for identification), the Registry Trust (for court judgements or decrees) and Cifas (for fraud prevention).
In order to build up an accurate picture of your personal credit history, the information held includes:
- Address details (past and present)
- Electoral register information
- Accounts, credit cards and loans in your name, including repayment information
- Financial associations – spouses or partners that you have a joint account or joint mortgage with
- Credit file searches in the last year
- Details of home repossessions
- County Court Judgements (CCJ) against you
Who can request to see your credit report?
With all that sensitive data kept in your credit file, it is reassuring to know that no-one has access to the information unless your give your express permission. You will normally do this as part of your credit application.
Landlords and employers will usually only be able to see your public record information, eg whether you’re on the electoral roll and if there are any CCJ judgements held against you. Any search on your credit file will leave a footprint on your report that also forms part of the stored information.
Of course you, as the data subject, have the statutory right to see your credit reference file. Simply write to any of the CRAs to request a copy of the information – there may be a £2 charge for this service.
Who are the main players?
The three main credit reference agencies – Equifax, Experian and CallCredit – each hold slightly different personal and financial data about each person which then forms the basis for creating your file and compiling the all-important credit score.
This is where it gets a bit confusing. Not only do different lenders use different CRAs to establish your creditworthiness, the credit score provided by each CRA will be different too – there’s no such thing as a universal credit score! Each agency has their own methodology for calculating your score and each CRA operates to their own scale: Experian’s scale goes from 0-999, while Equifax uses a scale of 0-700 and CallCredit 0-710.
With this in mind, it’s useful to know which CRA is preferred by your prospective lender or finance company. It also pays to know which credit reference agency you have the highest score with – both could influence the outcome of your credit application. What’s more, in order to maximise your chances of acceptance, it’s always a good idea to check your credit score before you make your application, just in case of any nasty surprises.
What’s the best way to check your credit file?
Getting hold of your own credit information is easy to do. As mentioned above, you have the legal right of access to your data and can request it from any of the credit reference agencies whenever you like, though there may be a nominal fee.
With Experian, you can now get your credit score free via the website, with regular monthly updates. For more in-depth service, sign up for CreditExpert for £14.99 a month (free 30 day trial) and get daily credit score and credit report updates plus lots of support to help you improve your credit score.
CallCredit works with Noddle who offer free access to your credit report and score for life. Equifax offer a free credit report and score for the first 30 days and £7.95 per month thereafter. Alternatively, sign up with ClearScore and get your Equifax credit score and full report for free.