A credit reference agency is an independent organization that is said to hold data on individuals. This data is secured and used to evaluate a person when in need of loans and other aids. A credit reference agency, (CRA) holds data that is about you.
This data includes financial behaviour, credit applications and accounts.
What these reference agencies do is, they collaborate with companies that lend more or give credit to individuals to gather data on you. This could be a determiner of the type of credit you’re offered or if you’re deemed eligible to get one at all. This evaluation is based on your financial status and current accounts.
The credit points you get from the above evaluation made by these CRA can help you get preferred loans, mortgages and types of credit.
There are three main credit reference agencies that are based in the UK.
Experian, TransUnion and Equifax. So, you have three credit scores from each of these reference agencies and loans offered to you are based on the credit scores from any of these.
Role of Credit Reference Agencies
Credit reference agencies serve a very important purpose to protecting you and protecting the public if such a need may arise. Here are a few of the roles that are carried out by these reference agencies.
- They help protect you and your assets from fraud. This is possible by alerting you once there is a change in your data. In other words, you’re aware of transactions going in and out of your account.
- They also help you understand the system and proffer means of improving your chances of credit acquisition.
- They help by collecting and holding individual credit information as well as other relevant data.
- They also use the information of individuals acquired to help both the person and company. This can speed up loan process and create a system based on credit score merit. It would also protect both the person and the company.
- CRA also ensure that your data is fraud free before referring you or vouching for you. They also make sure that your information is up to date.
- Credit reference agencies can also help you have a general idea of how eligible you might be for credit deals.
Credit reference agencies serve several purposes which range from protecting companies from fraud to easing credit loan processing. They also protect the individual whose information they have.
CRAs acting as intermediaries make things a lot easier. However, a credit reference agency can only do so much. Here are some of the things they do not have a hand in influencing. This can often be confused for one or the other.
- Credit reference agencies have no hand in making any final lending decisions. What they however do is create a merit based drawn from credit scores. This is a score gotten from your credit, financial behaviour and accounts. Lending companies take this score and give you credit deals based on the score. On contrary to an often misconstrued idea, they don’t approve any credit or partake in the refusal either.
- CRAs have no information on applications taken in by lending companies or applications that are rejected.
- They don’t hold information on people’s race, their religion, medical history or a blacklist of properties. Their information are based on the earlier mentioned criteria and nothing drawn up from a bias..
What Type of Information do CRAs Hold?
Information held by credit reference agencies are data collated from public records. This information is securely held to then be utilized by various companies that you have affiliations with. Example of this data includes individual insolvency register. Companies in this aspect could be the mobile phone company, the utility suppliers, banks and even credit card providers. It is important to take note that some companies don’t share data about their customers with all the three credit reference agencies. They can share different types of data as well.
Information held by these reference agencies is refreshed every four to six weeks soon as they receive update from the companies.
Here are examples of the type of data credit reference agencies may have on you.
- Your name, a current address as well as all your previous addresses, spanning at least six years long.
- If you’re registered on the electoral roll or not.
- The amount of accounts you’ve opened in the last six years & when you opened them.
- Missed payments, regular payments or any late payments.
- How much credit you have and how much of it you actually use.
- Your financial status and who you’re associated with financially. This data includes if you have a joint mortgage with someone for example, this is regarded as financial association.
- If you have gone bankrupt in the last six years or had a default, IVA, CCJ in the same number of years.
Companies that you are looking to go into business with or hoping to get credit from seek out all of these types of information before proceeding. A soft search would reveal some of these while a hard search goes deeper and displays your records. It helps them access your records and determine if you are eligible for a loan or mortgage.
How can credit reference agencies help?
CRAs can help in quite a number ways. They provide the company with information, otherwise saving you and the company a tedious process of evaluation and determination of eligibility. They help by making this process easier than it would be without their presence. Without the addition of credit reference agencies, loan acquisition and other credit processes become tedious. Companies may require proof of eligibility for every time you need a loan or mortgage. They might need to collect information about you for every time you need to apply for credit.
A process that has been eased by the presence of CRAs.
This could create problems like missing vital information, fraudulent applications, mistaken or overlooked credit history amongst other things.
They also help you improve your credit score and understand your own credit history.
Credit reference agencies are very important in the assessment of individuals for credit applications. There are three main credit reference agencies in the UK that hold information on people. This is securely held and comes in play when applying for loans. They are an important factor in the credit loan process.