Like your birth certificate, your driving licence and your criminal record, your credit score stays with you for life. It’s how finance companies decide whether or not they want to lend you money or set up a finance agreement, such as a hire purchase, and it contains a record of everything you owe and how good you are at making payments. But who keeps and updates your credit score, and how do they decide what your credit score is? It’s an important thing to know about if you intend to borrow money, so let’s take a look.
What Is a Credit Reference Agency?
In the days before phone and internet banking, all of your finances were dealt with at your local branch by your bank manager. They knew you personally, they knew your finances, and they could decide whether or not to lend you money based on whether they thought you could pay it back. Now that millions of people across the UK can access finance at the touch of a button and get loans in seconds, banks can’t keep track of people in this way. It’s just too complicated, so they rely on credit reference agencies (sometimes called credit reporting agencies) to do the job for them.
On the face of it, credit reference agencies (CRAs) are simply there to hold factual information about your finances in a file called a credit report. Their job is formed of two parts: firstly, they keep factual information about you so that banks can be 100% sure that you are who you say you are (fraudsters often hide behind fake identities to access the money they’re not entitled to). This means things like your full name and past names, your address and past addresses, your date of birth and whether you’re on the electoral register. With all this information, the banks can be sure you’re a real person, and this is why your credit score can be harmed if any of this information is wrong.
Their second job is to keep track of every single financial agreement you take out. This includes how much money you owe and to whom, how much you pay a month and whether you make those payments. Finance companies share this data with the CRAs to keep their records up to date, and in return, they get access to all the information they need about you. This lets them decide whether your finances match their lending criteria and thus whether they think you’ll be a good candidate for credit.
Currently, the major CRAs in the UK are TransUnion, Equifax, Experian and Crediva. All CRAs carry out the same jobs, so why is there more than one? Surely it’s all the same information, right? Well, while all the same basic information is the same, the way they convert your credit report into a credit score is different. Different types of lenders care more about different elements of your credit score. For example, insurers aren’t so worried about your savings or current accounts, but they do care about past bankruptcies or missed payments that might make you riskier. Car finance companies are much more interested in your monthly income and outgoings than your past credit history, while other companies purely want to make sure you’re not a fraudster.
As a result, all the CRAs cater to different industries and base their score on different information from each other, which is why it’s always a good idea to keep track of as many of them as you can. You never know which agencies your potential lender will be checking, and your score with one company might be very different from your score with another. So who are the CRAs, and how do they work? Let’s take a look.
The history of Equifax goes back far further than the history of the modern credit report, and in fact, it was Equifax that first started the concept of listing good customers way back in 19th-century America. Known as the Retail Credit Company, they provided a simple list of companies that were known to pay their bills on time, and it paid to be on their list because it became much easier for you to do business in new places. It’s no coincidence that credit reports were born at the same time as the railways because, for the first time, lots of business was being done by ordinary people many miles from their home, where their reputation wasn’t well known. This created a new kind of fraudster, one who could run faster than their bad name, and the credit list was a foolproof way to shut them down. If you were on the Retail Credit Company’s good list, businesses knew they could trust you even if they had never met you before and you worked 1,000 miles away.
In the 1980s, when banks first began legally requiring credit checks to be made on their potential customers, Equifax (as they are now known) were perfectly placed to become the world leader in providing this information electronically and introduced many innovations into the market, such as the ability to apply for your details to be corrected, and the ability for people to be able to see their own scores as banks do. However, in keeping with their roots as a reputation tracking company, even now, Equifax doesn’t track your current account balances or your savings, placing much more emphasis on tracking bad marks such as CCJs, bankruptcies and missed payments. They also track how much you owe, especially how much you have borrowed as a total percentage of the credit available to you. Using a combination of this information, they then attach a weighted percentage score to each aspect of your credit report and create an overall score using these results.
Equifax runs a subscription service that allows you to see your credit score whenever you want for a monthly fee and also provides smart information to you based on your score, which recommends ways to improve it or products you might be eligible for. Like the other CRAs, they legally have to provide a copy of your score whenever you ask for it, for a nominal fee, but as the score can change month by month, it might be more cost-effective to subscribe if you plan to check it regularly.
Taking a rather different approach to credit reports, Experian came into the CRA game from the data side of the spectrum when it was formed by the merger of two information services companies around the turn of the Millennium. As a result, Experian’s main selling point is the sheer volume of information that they hold on each person’s credit report, attempting to sell this access to as varied a pool of lenders as possible.
Unlike Equifax, whose information is of interest to more specific kinds of lenders, everyone from mortgage brokers to car finance dealers get their information from Experian. However, while the pool of information they keep on you is much larger, so is the pool of lenders able to access that information. This is because Experian aims to keep its credit reports as detailed and up to date as possible, so they don’t let just anyone access them. For data protection reasons, only companies signed up to the CAIS scheme and registered by the Financial Conduct Authority are allowed access. This proves they comply with the Data Protection Act, GDPR and the Consumer Credit Act. These are expensive and difficult to achieve, so it tends to be only the larger and wealthier lenders who can access Experian data, such as large banks and insurers.
In a similar fashion to Equifax, your Experian credit report is available to view online any time via a subscription.
Crediva is one of the smallest and newest CRAs of them all, having only received FCA authorisation in 2017. They currently serve a fairly niche set of industries, providing information to the communications, finance, healthcare and insurance sectors. So unless you are dealing with a lender that specialises in one of those areas, or you represent a business in those industries, it’s unlikely you’ll be checked by Crediva unless your lender specifies them. However, all CRAs work together to a certain extent to compare their files with each other, to make sure the data matches, so there’s a decent chance that the information Crediva holds on you will be used at one time or another by them or another CRA. In particular, CRAs work together to try and prevent fraud, and there’s a danger you’ll be flagged as a potential threat if your information isn’t consistent across all CRAs. As a result, you should make sure that all CRAs are correct in what they believe about you.
Unlike the other CRAs, Crediva is more of a business to business company that helps lenders rather than helping consumers get access to finance. Hence, their dashboard isn’t as sophisticated, and they don’t have a subscription option for consumers. However, by law, you have to be able to access your statutory report free of charge, which you can do via their website or their partner company, Check My File. This company also allows you to see all the other CRAs’ reports on you in one place for a monthly fee.
While TransUnion is a relatively new name in the UK CRA market, you may recognise them as CallCredit, one of the first CRAs to be set up in the UK. However, they were renamed in 2018 after TransUnion bought them out. One of the major selling points of their service is their unlimited, free access to your credit report via their portal, Credit Karma. This service is very much focused on helping users to improve their credit rating, something that the company feels is served by improving access to information.
Their credit reports and the metrics they use are very similar to fellow large CRAs Equifax and Experian, though they function more like a credit alert system with a greater focus on fraud and identity theft. For example, while the other CRAs update your credit report monthly, so lenders have to wait to view changes, TransUnion updates your report as soon as they are aware of changes and send out an alert to lenders you use to let them know. This is both to allow them to take action quickly if they need to and alert them to potential fraud as quickly as possible to let you know that your data may have been compromised.
Using Your Credit Score
While lenders mostly use your credit score to decide how attractive a customer you are, it can also be useful to you too. Seeing where you stand with all the CRAs lets you know how likely you are to be approved for finance, so you can avoid making potentially damaging applications if you’re unlikely to be approved.
There are also ways you can improve your credit score, which many of the CRAs will highlight as part of their subscription services. This can be as easy as correcting incorrect information on one or more of the CRAs, but can also point to ways in which you can change your spending habits and finances to improve your score. For example, paying down existing debts so you use less of your total available credit, paying off loans to reduce the number of overall lines of credit, or switching to a 0% credit card to reduce the amount of interest you pay every month.
As with any decision you make, information is key to making the right choice, so you should definitely pay attention to the CRAs, so you have the most up to date information, so you can see yourself as banks see you.