Beckie Pepperrell explains what the credit reference agencies do and how lenders use them to establish your creditworthiness. Then she looks at how to get a mortgage if your credit profile is less than perfect.
What is a Credit Reference Agency?
Credit Reference Agencies are companies which maintain a register of how you maintain your credit and service/utility accounts. They also hold details about your previous addresses and other information from public sources including the electoral roll, county court judgments, bankruptcy and insolvency data.
CRAs are used to establish your:
- Date of birth
- Residency status
- Entitlement to benefits
They are also used track fraud, combat money laundering and help recover payment of unpaid taxes and debts. For more detailed information go to the website of Information Commissioner’s Office.
At present there are three main CRAs operating in the UK: Callcredit, Equifax and Experian all of which are licensed by the Financial Conduct Authority.
Your credit profile is more important than your credit score
The CRAs use your profile to generate a credit score, which acts as a quick measure of your creditworthiness, although they should be taken with a pinch of salt! (You know those telly ads which show people finding their dusty credit score in the attic? Yes?) Credit scores actually get on my nerves because each CRA calculates the score differently and lenders do not rely on them to make a lending decision but instead will use their own internal credit scoring system based on your profile.
How do lenders use Credit Reference Agencies?
All lenders use the CRAs differently. Some lenders check your profile with all three agencies, others may only use one or two. Added to this is the fact that every lender has their own way of scoring an applicant and this means that every lender will score you differently.
And some lenders, service or utility providers may only add to your credit history with one agency which means that for a while your history might be different with every agency.
The key is knowing what each lender does; which ones are particularly harsh with their scoring and which ones are more relaxed. That’s where we come in.
How to get a mortgage with a poor credit profile
When you come to us for help finding a mortgage, we’ll often ask to see your credit report to help us determine which lender will best work with your profile. This is particularly important if you have or have had adverse credit such as defaults, CCJs, missed payments etc. It’s not always impossible to get a mortgage if you have bad credit but we need to see how much and what for so that we can work out the best financing solution for you. Applying for a loan and being turned down will not help your cause.
How to get a copy of your credit report
A statutory credit report costs £2 from any of the agencies. You can get this online or by post.
The agencies also offer a variety of paid for subscription services which provide ongoing access to your credit profile.
Experian and Equifax offer 30 day free trials followed by a subscription charge of around £15 per month. You can cancel these at any time, so you could get hold of your report for free as long as you remember to cancel the policy within the first 30 days.
Callcredit offers Credit Compass which is a premium service costing £14.95 per month and a lesser service called Noddle which is free.
It’s up to you which agency to use but if you want some guidance, do get in touch, as it will very much depend on .your circumstances and borrowing requirements. I am happy to talk through the options with you. Remember, we don’t charge a broker fee unless we are successful in getting you a formal mortgage offer.
Beckie Pepperrell has left Mortgages for Business for pastures new. For more information or for any questions relating to this blog, please contact the Residential Team on 0345 345 6788, where one of our consultant mortgage brokers will be happy to assist.