How do credit reference agencies work?

Credit reference agencies (CRAs) collect information about people’s purchasing decisions.

They provide this information to building societies, banks, and major retailers. This information is used to help assess whether credit applicants are likely to be able to repay them. It also helps protect themselves against fraudulent applications.

The United Kingdom has three main credit reference agencies: TransUnion, Equifax, and Experian. When credit providers need quick and accurate information about someone applying for credit, they contact these CRAs for insight.

Why are credit reference agencies important?

CRAs exist to provide transparency to the different parties involved in credit applications – and since the gross value of UK consumer lending has more than doubled over the past 12 years, this transparency is more important than ever.

So, how exactly do credit reference agencies improve visibility in this space?

By informing credit providers

Creditors need to know that the people they lend money to can pay them back. This is the case with all forms of credit, including bad credit loans for people with poor credit histories.

By looking at their applicants’ past behaviour, credit providers can better gauge whether they have a good chance of receiving their loan repayments on time – emphasising the need for consumers to repay any loan payments promptly. Failing to make repayments on time, or at all can hurt your chances of borrowing in the future.

  • By providing consumers with insight

Moreover, people applying for credit must be fully informed before making any decisions. Credit reference agencies give consumers insight into how lenders view them through credit reports. This gives them a better idea of whether their application will be accepted and tells them how to improve their chances.

  • By fighting cybercrime

Credit reference agencies are also instrumental in the fight against cybercrime, as criminals may try to defraud credit providers by stealing personal information and using it to make applications.

Fraudulent activity such as this takes place throughout the year, yet generally spikes during seasonal periods as there is an increased number of credit applications. For instance, the last three months of 2021 saw credit card fraud rates increase by 42%, according to data analysed by Experian.

By keeping accurate records of consumer information and offering this to credit providers, CRAs can reduce the chances of criminals successfully committing fraud.

How do credit reference agencies collect information?

CRAs collect information from a variety of private and publicly available data sources, to create an overall report. These sources include:

– Credit lenders

– Mobile phone companies

– Utility suppliers

– The Electoral Roll

– Local Councils

– The Registry Trust

– Other trusted data partners

The law doesn’t require credit reference agencies to get consent before collecting information. They’re able to use it within reason, as long as they are transparent with the public regarding what they’re using it for.

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