Credit Reference Agencies

The majority of lenders consult a credit reference agency when you apply for a loan. These agencies collect and collate information about people's lending habits from a variety of sources - for example, bankruptcy records and lists of unsatisfied County Court judgments. Lenders who use the agencies also provide information about their own borrowers' repayment histories. This includes details of loan defaults, and late or missed payments - so-called 'black' information. Most lenders also provide the agencies with 'white' information - details about loans which you did pay off within the agreed terms - and this can help to show that you are a good credit risk. Banks don't provide 'white' information - under your implied contract with your bank, it would be a breach of confidentiality for the bank to disclose this information without your specific consent. The position is different with 'black' information because, by defaulting on a loan, you are deemed to have already broken the contract with the bank.

You can find out what information, if any, a credit reference agency holds about you by writing to them, or phoning, for an enquiry form. You complete and return this, enclosing a fee of £4. Three large agencies dominate the market:

Infolink Limited

CCN Systems Limited

Westcot Data

If you've been told that you were turned down by a lender as a result of a credit reference agency's report, the lender must give you the name and address of the agency, so that you can check your file if you wish. (Most lenders will automatically provide you with the necessary enquiry form.) The Consumer Credit Act 1974 gives you the right to request the agency to correct any errors on your file. The corrected file must be sent by the agency to all the lenders who've consulted it within the last six months.

TIP - A credit reference agency has 28 days to respond to your request for a correction to your file. If they don't reply or if they refuse to alter the file, you're entitled by law to write your own correction note which the agency must add to your file (unless they intend to ask the Director General of Fair Trading to arbitrate in the matter).

Before you approach particular lenders for a quote, you should work out what sort of loan would best suit your purpose and situation. The main points to think about are considered below.

Read more about The Small Print

Credit Scoring

This is a statistical technique, used by most lenders, for automatically assessing whether you're likely to be a good or a bad credit risk. Different insurers try to put you into different risk categories for car or life insurance.

Credit scoring systems are usually computer models developed by specialist firms and sold to lenders. The systems use data about loans that have been made in the past to work out which characteristics of the borrowers tend to be attributes of good borrowers and which of bad ones. The characteristics are given a score; different lenders use different systems, but... see: Credit Scoring

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