In our personal lives, we’re conditioned to be debt-averse. The old adage ‘neither a lender nor a borrower be’ is instilled in most of us from a very early age. For those of us who run our own SMEs, however, it’s important to adopt a more positive view of debt. Borrowing is at worst a necessary evil, and at best a key that unlocks new opportunities. Borrowing can provide access to superior plant and equipment, enabling you to deliver operational excellence. It can facilitate cash flow, ensure that your team are paid on time, and maintain good relationships with suppliers. The difference between a debt being a blessing and a curse depends largely on the quality of credit available to you.
This, in turn, depends on your company’s credit score. The better your credit score, the more likely you are to be able to access credit with advantageous interest rates. A poor credit score will leave you with access to only poor-quality, high-interest sources of credit. The kind that can stymie your liquidity, and place a squeeze on your profit margins.
But who determines your credit score, and what data do they use to ascertain it? Here, we’ll look at Credit Reference Agencies and their role in deciding your business and personal credit score.
Credit Reference Agencies explained
Credit Reference Agencies (CRAs) are independent companies that lenders consult to determine the creditworthiness of individuals and companies. They also work with credit consumers to help them better understand their credit score with detailed credit reporting. There are four main CRAs in the UK. These are Experian, Equifax, TransUnion and Crediva. When you apply for credit, lenders may check any one (or all) of these CRAs in order to make an informed decision and mitigate their risk.
These CRAs pull data from a broad spectrum of sources to ascertain your business and personal credit score including:
The electoral roll
The Registry Trust
Banks, building societies and other lenders
Credit card companies
CRAs have a legal obligation under the Data Protection Act to ensure that the data they hold is kept safe, as well as being relevant and accurate. They cannot share the data they store with anyone else without your permission.
Why do I have different credit scores?
Personal credit scores range from 300 to 999, while business credit scores are typically rated from 0 to 100. The higher your score, the better your credit rating. However, you may notice that your credit score band differs from one CRA to the next. Experian’s scoring system, for instance, goes up to 999 while Equifax’s goes up to 700. As such, your numerical score may have different meanings with different agencies.
This isn’t necessarily anything to worry about. Just focus on getting your credit score as high as possible without worrying about the numbers. The best way to do this is by staying in touch with your creditors, paying your debts on time, and being proactive in arranging a repayment plan if you foresee missing a repayment.
How to check your credit score
Businesses and individuals alike can apply to CRAs either directly or through third parties to check their credit scores. Experian, for instance, offers a free credit check that is updated monthly. Others provide free access to your credit score through intermediaries like Clearscore, Credit Karma, or Money Saving Expert’s Credit Club.
All CRAs have a service that enables you to check your credit score in real-time and download your credit report in return for a small monthly fee.
We can help
If you’re interested in finding out more about Credit Reference Agencies and your credit report, then get in touch with our financial experts. Discover how GoCardless can help you with ad hoc payments or recurring payments.