13. Credit reference agencies
There is no right to credit, and most lenders decide credit applications based on ’credit scoring’ – ie, a system used to assess the probability of applicants meeting their financial commitments, using information supplied on the credit application form, the lender’s records (where available) and data from credit reference agencies. Different lenders use different systems, which should not only establish the likelihood of the applicant repaying but also whether they can afford to do so.
There are three main credit reference agencies in the UK: Experian, Equifax and TransUnion. They provide information about clients and their credit records. They do not:
•make the decision or express any opinion about whether clients should be given credit and are unable to tell clients why they have been refused credit; or
•keep ’blacklists’ or details of clients’ credit scores.
When a creditor informs a client that it is rejecting their credit application, based on information from a credit reference agency, the creditor must provide details of the credit reference agency, including the name, address and telephone number.1s157 CCA 1974 Failure to do so is an offence. This requirement does not apply to agreements secured on land. Credit reference agencies usually keep details of:
•electoral roll entries;
•sheriff court decrees. These are held for six years from the date of judgment unless paid within one month when any record is removed;
•bankruptcies and protected trust deeds. These are held for six years from the date of sequestration or signing the trust deed;
•credit accounts. A record is held until the account is paid off and then for a further six years;
•whether the client has defaulted on a credit agreement. A record is held for six years from the date the default was registered, normally when the account is three to six months in arrears;
•mortgage repossessions, including voluntary repossessions. These are held for six years;
•aliases, associations and linked addresses – ie, any other names the client has been known by, previous addresses or correspondence addresses, and whether they share financial responsibility for an account with another person;
•a warning from Credit Industry Fraud Avoidance System (CIFAS) – a fraud avoidance system developed to protect people whose names, addresses or other details have been used fraudulently by other people to apply for or obtain credit. It does not mean that the client is being accused of fraud, but any credit applications may be checked out to ensure they are, in fact, the applicant.
•information from the Gone Away Information Network (known as GAIN) – ie, on clients who have ’gone away’ without informing their lenders of a forwarding address. This information is held for six years;
•previous credit searches by lenders in the past two years. Several searches within a short period may indicate attempted fraud or over-commitment.
A client’s credit file should only hold information about them and any other person they have a ’financial association’ with – ie, joint account holders or applicants, or anyone who informs the agency that they have financial ties. This allows lenders to take account of information about anyone ’linked’ to the client.
Although the client can ask a lender only to take account of information about them, this does not prevent the lender from carrying out checks to make sure that this is not intended to hide a partner’s poor credit rating. If there is no financial association, the client should inform the agency so the link can be removed.
Useful publications
Experian has published a helpful guide called Understanding your credit information and how lenders use it.2 The Information Commissioner’s Office publishes a leaflet, Credit Explained.3The Information Commissioner has collaborated with the credit industry to produce a guidance document, Principles for the Reporting of Arrears, Arrangements and Defaults at Credit Reference Agencies.4