Credit Reference Agencies
Credit Reference Agencies UK
Credit reference agencies are the term used for credit bureau‘s in the UK. These agencies are responsible for collecting and maintaining up to date credit information on consumers. This information has a variety of uses but is most commonly used in the approval or denial of credit applications. There are three major reference agencies in the UK, they are; Experian, Equifax & Callcredit (Callcredit has strong ties to the other big US credit bureau – TransUnion). There is also one smaller reference agency called National Hunter. These agencies must follow the rules and regulations that are set out in Consumer Credit Act of 1974. They must also adhere to the data protection act of 1998 which requires all information that is individual identifiable (which includes credit data) follow these rules;
- Accurate
- Relevant
- Held for the proper purpose
- Cannot be out of date
Individuals also have the legal right to access any data which is held on them.
Credit Reference Agency Scorecards
The data that these reference agencies collect and collate is most commonly used for credit scorecards, which are used to approve and deny those applying for credit. The most commonly used type of credit scorecard is called a binary credit scorecard which has two results (1 or 0), for example when somebody applies for credit they will be run against a bad debt binary scorecard. If the person receives a one they have a higher than acceptable chance of becoming bad debt, while if they receive a zero they will have a lower chance of becoming bad debt. Those who receive the zero will likely be approved for the loan while those who receive the one will likely be denied or offered a much higher rate of interest.
Complex Credit Reference Agencies Scorecards
More complex scorecards which give ranges (for example, this customer is likely to have bad debt of $500-$1000) rather than absolute values are being developed and becoming more widely used within the credit industry in the UK.