Credit Score Basics > How credit reference agencies work

How credit reference agencies work

Wollit Team3 minute read · Updated 15th September 2024

Credit reference agencies (CRAs) are important institutions in the UK when it comes to borrowing money. They help lenders decide if someone is a good candidate for a loan or credit.

Here is what CRAs are, how they work, what kind of information they have on you, and how they affect your credit score.

What are credit reference agencies?

Credit reference agencies are companies that collect and share information about people’s credit history. In the UK, there are three main CRAs:

Experian: the largest one;
Equifax: the second largest;
TransUnion: the third largest, and formerly called Callcredit.

CRAs are essential for lenders because they help them understand how reliable you might be as a borrower.

How do credit reference agencies work?

CRAs gather information about you from various places, including:

Banks and lenders: information about your credit cards, loans, and mortgages, as well as whether you made all payments on time.
Official sources, like the electoral roll, bankruptcy register, and court judgments.
Other sources: for example, your bank statement if you report your rent payments.

This information is put together to create a credit report. This is a detailed document that shows your personal information, credit accounts, payment history, and any public records.

Based on your credit report, the CRAs will calculate a credit score for you. This is a credit score that summarizes your creditworthiness. Each credit agency calculates this score differently and also has a different credit score range. Experian’s is between 0 to 999, Equifax’s from 0 to 1000, and TransUnion's from 0 to 710. Regardless, one thing is important: higher scores mean better credit.

How do lenders use the information from the credit reference agencies?

When you apply for credit, lenders use CRAs to check your creditworthiness. Here’s how it works:

You fill out a credit application, giving personal and financial details.
The lender then asks a CRA for your credit report. They can only do this with your permission.
After receiving it, the lender reviews your credit report and score, along with other factors like your income and existing debts, to decide if they will approve your application.

One thing that’s very important to keep in mind here: CRAs do not decide if you get credit; they just provide the information that lenders use.

How can I check my credit report and score?

You can check your credit report and credit score for free using:

Experian’s own website (although you’ll have to pay for the full credit report);
ClearScore (for your Equifax report and score);
And Credit Karma (for the TransUnion one);

Regularly checking your report helps you spot mistakes and understand how lenders see you. And if you find errors in your credit report, you can always dispute them. Each CRA has a process for reporting mistakes, and they must investigate your dispute within a certain time. Fixing errors is very important because they can hurt your credit score without any fault of your own.

How can I improve how my credit report looks?

To improve how your credit report looks like, and to make sure that lenders are more likely to accept your application and offer you a good deal, here is what you need to do:

Always pay your bills on time to keep a good payment history.
Try to use less than 25% of your available credit limit, and try to never max out your credit cards.
Avoid applying for many credit accounts at once, as this can hurt your score.
Check your credit report often for errors and fix them quickly.
Consider adding a “Notice of Correction” to your credit report to explain one-off negative marks. Lenders might understand your situation if, for example, you missed a payment because you lost your job.
Register to vote, and update your electoral registration every time you move.
If you have a joint account with someone with a poor credit history, consider closing that account and adding a “Notice of Disassociation”. This removes the financial link and keeps your credit score safe.
Most importantly, keep improving your credit score using credit-building tools like a credit-building card or app.

One such tool is Wollit. Wollit works by reporting a fixed fee monthly subscription as a loan repayment to the credit reference agencies (Experian, Equifax, and TransUnion). This helps you build or rebuild your credit history by showing that you can pay debt on time. It can even report your monthly rent payment to Experian, adding another line in your credit report that shows lenders you're responsible and pay your bills when they’re due. In time, this will help you improve your credit score so you won’t need to be worried about any credit check ever again.