Where do credit reference agencies get their information from?
Almost everyone and every business in the UK has their financial information held by a credit reference agency. The collated information is pulled together in a report showing how you or your company have handled credit in the past, what types of credit you have used and if you hold any debts. Potential lenders use this as a guide to ascertain whether you the business are a high or low risk to them in terms of credit worthiness.
The information a credit reference agency holds is varied and with several agencies in the UK, they can differ in content, which can lead to discrepancies and differences of opinion, although in the majority of cases there will be a broad consensus as to the overall level of risk or confidence.
Each potential lender uses different criteria to decide whether to offer a credit facility to you so contrary to popular belief, there is not an actual overall credit score. You could prove credit worthy to one lender and not to another based on the information their chosen agency holds about you compared with their criteria. Each lender or business extending credit will have a different method in determining how to view the financial stability of a business and the potential risk. Some will simply look at a credit report and may also use trade references, others have their own credit scoring process.
This is not usually something that can be determined in advance so one company may offer credit while another may decline the request. Each company will, however, use the information to paint an overall picture so if you are a small business, it may be worth performing a credit check on your own business to fully view and understand the information held about you.
The information held about consumers includes:
• Your current and previous addresses going back at least 6 years
• Any name changes or aliases you have had
• Details of your previous and current lending including mortgages, personal and business loans, credit cards and store cards
• Details of your repayments; whether you have paid on time, paid late or missed payments altogether
• Details of any court action held against you or those you have been involved in
• Details of any insolvencies, bankruptcies or individual voluntary agreements (IVAs)
• If you have moved or changed home address or left the country without notifying your lenders of the change.
For companies the information includes:
• The age, type of business, and registered and trading addresses
• Type of business, and activities
• Related group companies and parent company if any, and shareholders
• Names and addresses of directors, and details of their history of other directorships
• Details of county court judgements, public notices, and Companies House actions
• Financial extracts from filed accounts
For both consumers and companies, reports will also include a credit score and an indication of risk status. For companies a credit report can include a calculated suggested credit limit, the company extending credit can use this figure as a guide, or can of course make their own decision. In the case of consumers, credit agencies do not calculate any credit limit; this is an important distinction between corporate and consumer credit reports. In the case of consumer credit reports, credit agencies do not give any opinion or recommendation as to the amount of credit which a consumer may or may not be able to support, the credit agencies provide the information they hold and the credit score calculated, but they provide this information without an opinion. The opinion is to be formed and decided solely by the lender, not the credit agency.
Collation of information
Credit reference agencies collate the information from a variety of sources. For consumer credit reports the agencies provide a wide picture of your financial history and likelihood of being a responsible borrower. They get details about your personal circumstances from the electoral role, which shows whether you live at the address you have supplied.
They use details from the courts including County Court Judgements showing who has paid their debts within the past 6 years and who still has sums outstanding. This is used alongside further public records on bankruptcies.
The agencies also collate information supplied by banks, building societies and other financial institutions to paint a picture on your previous borrowing and credit status.
Further information is supplied from GAIN, The Gone Away Information Network, which shows of you have moved away without notifying lenders of your new address.
Company credit searches
On most company credit checks, the company information will be shown to include the name and address, possibly a telephone number, age of the company, industry type and director information. The credit report will attempt to detail all available financial information necessary to make informed decisions on whether to do business with the company and offer a credit facility.
The credit check produces a score and details how likely it is the company may become insolvent within the next 12 months. The score is usually determined using a numerical rating.
Lenders use this information as a guide to determine whether they should offer credit and may use their own discretion while comparing it with their set criteria.
For both consumers seeking personal credit or loans, and companies applying for credit terms with suppliers, it is always worth checking your own credit file or credit report to see the information held about you or your company. If you see errors, or spot information that is out dated, you can get the information corrected. If your rating appears weak you can identify why, and you may be able to improve your credit score with practical actions to remedy points that are counting against you.
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