Basically, credit referencing is the compilation of a credit report which refers to an individual person.
This credit report contains a score which is then used, along with other criteria, by lenders to determine whether you are a good credit risk or not.
In essence, lenders want to ensure that people haven't had a lot of bad debts in the past because they think this could affect ability to pay off any future loans.
Factual information is held on all of us by companies such as Experian, CallCredit PLC and Equifax.
Lenders use these credit reference agencies to check personal details for example your name and address as well as your credit history which will highlight if you have had any loans before and how well (or not) these were settled, any defaults on payments recorded against you and any County Court Judgements.
Each time you obtain a new form of credit you will leave an electronic footprint on your credit file.
The agencies then use this to compile a system of credit "scoring.
" Whenever you apply for a loan, be it building society, bank or other lender, a credit check will be run on you to find out what type of score you have.
The decision to refuse credit is not given by any of the credit reference agencies but by the lender itself.
People are turned down for credit for a variety of reasons although it is unlawful to deny credit on grounds of religion, gender, race, sexual orientation or address.
If you are denied credit, a lender must state why.
In addition, under the Data Protection Act, if scoring was used to help the lender reach such a decision, you are entitled to a review of your application.
You can request a copy of your own credit report too.
Experian has a low cost telephone order-line: 0870 241 6212 where reports cost £2.
50 and are usually sent out within 7 days.
You will need to provide your date of birth, name, address, details of any previous addresses over the past six years and have a debit or credit card in your own name.
If you need a credit report urgently, Equifax offers an online service which costs £11.
50 or it has a postal service for which it charges £8.
25 per report.
If your credit report contains information that is wrong or outdated this could affect your chances of getting credit.
If you find this to be the case, you will need to take the following action to correct the information as soon as you can: oKeep a record of anything you do.
If using the postal system always request return receipts and make copies of any documents or correspondence you send.
Originals must never be sent.
oContact the lender first rather than the credit reference agency.
Most lenders are large companies and have procedures in place for account disputes.
If you have proof of a mistake, the matter should be resolved quickly.
oIf the lender or creditor agrees that the information is incorrect, it is their responsibility to its own records and those held by the credit reference agency.
This usually happens within 28 days.
oAlways send a letter in addition to a phone call.
List each item you disagree with, stating why it is inaccurate.
Include details of all relevant documents, your account number, the amount in question, name and reason why you think the information is wrong.
oContact the credit reference agency only if you are unable to solve the problem with the lender directly.
You will require a printed version of your credit report form oThe credit agency will review the written inaccuracy and if necessary will notify your dispute to the company who supplied the information in question to them.
oThis company will then conduct their own investigation and report back.
Changes to your file based on this investigation will then be made by the credit reference agency and they will notify you of the update.