Whether your credit score is in need of some serious TLC or you’re just curious about how it all works, familiarising yourself with the three main credit reporting agencies can help you better understand your financial situation.
The UK is home to three credit reporting agencies, each with its own unique history and scoring system.
What is a credit reporting agency?
A credit reporting agency (also known as a credit reference agency) is a company that collects and maintains financial information on individuals and businesses. It then takes these financial details and compiles it into a unique credit score, which is what helps lenders determine whether or not to give you a specific credit product.
They gather information from different sources, such as banks, building societies, insurance companies, and courts. However, each credit reference agency collects details from different sources and places different emphasis on each factor.
This means that while your credit score will likely fall into the same category no matter where you look, you don’t have a single, universal credit score. For example, your Equifax credit report will be slightly different from your Experian and TransUnion credit reports.
It’s important to note that while credit reference agencies collect information about your personal details and financial behaviour, they are not permitted to report on your race, religion, medical history, sexuality, or political beliefs under any circumstances.
Most credit reports are updated monthly, even if your credit score stays the same. By law, all credit reference agencies must provide free online credit reports. Under the Consumer Credit Act (1974), you have the right to access a copy of your own credit report produced by any of the three credit reference agencies. This only counts as a soft credit check, which doesn’t leave a trace.
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What are the main credit reference agencies in the UK?
In the UK, the main credit reference agencies are Experian, TransUnion, and Equifax.
We’ve provided a brief summary of each below:
Experian
Founded in 1996, Experian is a global data and technology company operating in more than 30 countries worldwide from its headquarters in Dublin, Ireland. It provides a range of services to both customers and businesses, but primarily specialises in data collection and analytics, particularly in relation to financial activity.
Put simply, the firm aims to help people stay in control of their finances by maintaining a healthy credit history and avoiding fraudulent applications.
TransUnion
TransUnion was founded in 1968 and is based in Chicago, USA. Like Experian, it also operates in more than 30 countries worldwide and specialises in consumer credit reporting.
Some of the other services offered include fraud protection, risk management, and data and insights.
Equifax
Founded in 1899, Equifax is a global data and technology company based in Atlanta, USA.
Its customer base spans across 25 countries, offering services like credit reports, credit scores, and identity protection.
How is my credit score determined?
Each credit reporting agency has its own method of credit scoring, but they all follow a similar set of steps.
Here is a guide to the different types of information credit reporting agencies use to determine your unique credit score:
Credit history
The biggest contributor to your credit score is how well you’ve handled credit in the past. So, if you’ve always paid your debts on time and in full, your credit score will likely reflect that and you should have no problem getting a loan, mortgage, credit card, phone contract, or bank account.
However, if your credit history shows that you’ve got outstanding debts, loans, defaults, missed payments, or court orders, your credit score might not be as sound and you’ll find it difficult to get a lender to approve you for further credit agreements.
Credit enquiries
Every time you apply for credit, a lender will access your credit file, leaving a ‘hard enquiry’ or ‘hard credit search’ behind. This is basically a footprint that confirms a lender has performed a complete check of your credit file to assess your eligibility for credit.
Because multiple hard enquiries suggest that you’ve applied for credit several times and are therefore struggling financially or dependent on credit, it will have a negative impact on your credit score.
Public records
Another key factor that contributes to your credit score is negative public information. If you have a bankruptcy, insolvency, or court judgment in your name, this will be visible on your credit report and harm your credit score.
However, other types of public information can have a positive impact on your credit score and offset the effect of any negative factors. For example, if you’re registered to vote at your current address, lenders will be able to confirm your identity and rule out fraud, boosting your credit score in the process.
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What can drag my credit score down?
It’s important to know which behaviours can drag your credit score down so you can avoid them at all costs.
Here are some of the factors that can cause your credit score to plummet:
Having no credit history
It might sound harsh, but lenders don’t know how capable you are of sticking to credit applications if there’s no proof of you doing so. This means that, if you’ve never taken out credit in your name, you could find it difficult to get approved.
However, this doesn’t necessarily mean that you’re an irresponsible borrower, just that you haven’t had the chance to build up your credit history yet. This might be the case if you’ve recently turned 18 (when your credit history starts), you’ve just moved to the UK, or you’ve always sent someone else money for your half of the rent or bills.
Maximising your credit limit
When you take out a credit card, it will have a limit on how much you can spend on it each month. Coming close to or maximising your credit limit can negatively impact your credit score as it indicates that you’re financially stretched – even if your limit is set quite low.
Most lenders prefer to see no more than 30% of your available credit limit used as this shows that you’re using your credit card responsibly and are not reliant on credit for everyday expenses.
Missing payments
One of the easiest ways to show that you can manage your finances responsibly is to make payments when they’re due. If you miss payments, the lender might close your account and register a default on your credit file for six years.
Having a default on your credit file is a red flag to lenders as it shows that you’ve let past debts go unpaid for some time. It’s also worth noting that if you open a joint account with someone and the other party fails to make payments, you’ll both be ‘jointly and severally liable’ for any subsequent legal action because you’re financially linked.
Errors on your credit report
Though rare, some people don’t realise they have errors on their credit report until they go to apply for a mortgage and are refused due to old or conflicting information.
It’s crucial to challenge incorrect information on your credit file by contacting the relevant credit reference agency as soon as possible. When you reach out to them, you must provide evidence to allow them to remove the mistake and update your record accordingly.
Most credit reference agencies hold information about you for six years. This means that your current credit file might still include details of closed accounts, previous addresses, and old debts. If you notice any other addresses you don’t recognise, you should send proof of address for the past six years.
If the credit reference agency isn’t able to remove or rectify the error, you’re entitled to use a Notice of Correction (NOC) to explain your situation. Most credit decisions today are made by automatic means, but it can add context to an entry on your credit file for lenders searching your credit file.
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How can I improve my credit scores?
If your credit score has been compromised, it’s normal to be worried that you’ll never be approved for credit again. However, most negative markers on your credit reference file only stay there temporarily, and the good news is, there are many things you can do to gradually improve your credit score.
Some credit repair companies will charge you a fee in exchange for an information pack that details how to dramatically improve your credit score or clear County Court Judgments (CCJs) from your credit report.
However, the truth is that it’s impossible to know how your credit score will react when you take different actions. These companies should be avoided if possible as they’ll only do things in the same way as you would if you were to tackle it yourself.
We’ve outlined some of the steps you should take to boost your credit rating below:
Prove where you live
One of the easiest ways to give your credit score a quick boost is to register to vote at your current address. This helps because, when you apply for credit, lenders will check electoral roll information to confirm your details and, if they match, they can rule out fraud.
It’s important to note that you can still register to vote if you live in shared accommodation or with your parents.
Make timely payments
As previously mentioned, your credit history can have one of the biggest impacts on your credit score. Therefore, the longer you can prove you’re able to make regular payments on time, the more likely lenders will be to give you credit.
Having several credit accounts that you pay on time also shows that you’re a reliable borrower and are capable of handling credit.
Keep old accounts open and active
Keeping old accounts open and active shows lenders that you can successfully manage multiple credit accounts over a prolonged period. This makes them less worried that you’ll default on another credit agreement if they were to lend to you.
Most credit reference agencies reward you for having long-standing credit accounts and avoiding a default notice, so this can be a good way to improve your credit score across all credit reference agencies.
Consider a credit builder card
Getting a credit card while your credit score is damaged might seem like a poor financial decision, but some are designed to help you build your credit history back up.
They typically have low spending limits and high interest rates to encourage you to use them wisely and can be effective for small purchases as long as the balance is repaid in full each month.
What are my options if my application for credit has been refused?
Unfortunately, there is no way to predict whether a lender will give you credit. In fact, even a perfect credit score doesn’t guarantee that you’ll be approved.
Most lenders won’t tell you why your application has been rejected, but they should tell you which credit reference agency they used to access your credit score and ultimately make a decision. Once you have this information, you can request a free copy of your credit report from that credit reference agency.
Some of the most common reasons why you might be refused credit include:
- A history of missed payments
- Evidence of fraudulent activity or identity theft on your credit file
- Failing to meet the lender’s eligibility criteria (e.g. your income is too low or you’ve missed a single payment)
If you’re not desperate for credit, there is nothing stopping you from re-applying to the same lender after you’ve taken some time to work on your credit score. Otherwise, it might be a better idea to shop around for the same product from a different provider.
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Can I complain about a credit reference agency?
If you think a credit reference agency has dealt with your credit file in a way you consider unfair, you have the right to complain using the credit reference agency’s complaints procedure.
For example, if a credit reference agency hasn’t corrected information on your credit file without a valid reason or refuses to remove an account in joint names with someone that you no longer have a financial connection with (e.g. an ex-partner), you should file a complaint.
However, if you’re not satisfied or you don’t agree with the outcome of the complaint, you can escalate it to the Financial Ombudsman Service or the Information Commissioner’s Office under the Data Protection Act (2018). If they agree with your complaint, they will contact the credit reference agency on your behalf to rectify the dispute.
Conclusion
If you’re seeking credit in the form of a credit card, loan, or mortgage, it’s crucial that your credit score is in the best possible condition it can be. Each credit reference agency calculates credit scores slightly differently, but yours will be similar across the board.
Knowing which things can improve and harm your credit score can help you achieve the best credit score you can. For example, registering to vote at your current address can boost your score while missing payments can damage it.
Failing to meet a lender’s eligibility criteria or missing payments on a regular basis can lead to your credit application being refused. When this happens, it’s worth asking which credit reference agency they used to access your credit score and taking a look to see if you can improve it.
