When applying for a bank loan or credit card, have you ever wondered how the bank or credit card company knows whether to accept your application? Or have you wondered how they decide how much to charge you for borrowing money? The answer is that most of the time, they’re relying on specific financial information about you. It’s information collected by one of the UK’s three credit bureaus, also called credit reference agencies.
Here is a guide that explains everything you need to know about these bureaus.
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What are credit bureaus and how do they work?
A credit bureau is an agency that collects information about your credit usage and history. The information is compiled into one report, known as a credit report. Some of the information that you may find on your credit report includes:
- Details of your current and past credit activities (e.g. mortgages, loans and credit cards you’ve taken out and your payment history)
- Details of enquiries on your credit report
- Personal identifiable information (e.g. your name and your former and current address)
- Whether you are on the electoral roll
- Whether you have any financial associations with someone else (e.g. a joint mortgage)
- Information about you that is available publicly (e.g. records of bankruptcies, county court judgements (CCJs) and individual voluntary arrangements).
The information in your credit report is used to calculate your credit score, a three-digit number that is used to indicate whether you are financially responsible and a good borrower.
Lenders can request a copy of your credit report from the credit bureaus to help make decisions on whether to give you a loan or credit.
It’s worth noting that credit bureaus do not make any direct lending decisions. They only collect information and supply it to lenders.
What are the main credit bureaus?
The three operate independently. As a result, credit reports from each of the three bureaus may be slightly different. Different bureaus may also have different information on your report depending on how frequently they update your information.
In addition, each has a different credit scoring system. For example, Experian calculates your score out of a total of 999. Equifax does it out of 700 and TransUnion gives you a score out of 710. So, what constitutes a good credit score can vary depending on the credit bureau.
However, since all three agencies base your score on your financial history, if this history is the same across all three agencies, then you will likely fall into the same rating category (e.g. good, fair or poor) with all of them regardless of your actual score.
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Where do they get their information?
Credit bureaus get their info from several sources. The main sources are lenders, such as banks, mortgage companies, and credit card companies, through ‘reciprocal data sharing agreements’. These lenders provide credit bureaus with regular updates on your credit status.
Other sources of information include debt collection agencies and public records such as the Electoral Roll and the Register of Judgements, Orders and Fines (the latter of which contains info about CCJs).
Are the credit bureaus regulated?
Yes. Given that they hold such valuable and sensitive data on people, credit bureaus are regulated by the Financial Conduct Authority (FCA) and governed by the Information Commissioner’s Office (ICO).
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