2 Credit referencing
The role of credit reference agencies
7. Lending institutions use the information held
by the credit reference agencies (CRAs) to assess whether they
should lend money to consumers, and in some cases, at what price
credit should be offered. Experian defines the role of a credit
reference agency as follows:
A credit reference agency collects, matches, derives,
merges, and supplies data to organisations to help them make decisions
about whether to give, or continue to give credit to individuals
and/or businesses. They create and hold databases of people and/or
businesses operating within the country in which they operate
so, for example, the CRA operated by Experian in the UK will only
hold data on people and businesses with addresses in the UK.[10]
Experian notes that "Experian does develop and
provide credit scores but most lenders will use their own, although
they use Experian scores as part of their decision process".[11]
CRAs do not set lending policies within lending institutions or
set the level of risk a lending institution may be prepared to
accept.[12]
8. The information held by CRAs will be a mixture
of public and private information. Public information could include
whether consumers are listed on the electoral register, and whether
they have any bankruptcy proceedings against them. Private data
will include details of any credit agreements a consumer has signed
up to.[13]
9. The lending institutions were keen to point out
that if they were to ensure that lending is conducted in a responsible
way, it was important that lenders were able to make proper assessments
of those seeking credit. Searches of information of credit reference
agencies played an important part in that assessment process.[14]
Pricing for risk
10. Some credit products, such as personal loans,
may have an advertised interest rate, so that all consumers accepted
for such a product will only receive that interest rate. Some
credit products though are 'priced for risk'. For these 'priced
for risk' products, while a consumer with a weaker credit history
(in the eyes of the lender) can still be accepted for credit,
they may receive a higher APR (interest rate) than that advertised.
However, under the Consumer Credit (Advertisements) Regulations
2004 the APR (or lower) that was advertised should be obtained
by at least 66% of those people for whom the credit was provided.[15]
Different types of credit searches
11. The increasing use of 'priced for risk' products
meant that a different form of credit search was created. The
two main types of credit search are as follows:
- An application search
is made when a consumer wants to apply to receive credit. Consumers'
credit reference files are marked when such searches are made,
and such searches are visible to other lenders looking at the
file.[16]
- Quotation searches
were originally developed to provide a quotation of the price
a consumer may pay for a 'priced for risk' mortgage.[17]
Quotation searches provide the lender with all the information
it needs to price the product for the consumer, but no mark is
visible on the file for other lenders to see that the search has
been undertaken.[18]
This allows consumers to compare prices without multiple searches
appearing to other lenders. Quotation searches only provide information
on price, rather than whether a consumer will be accepted for
a particular product. That means they are only useful for products
that are 'priced for risk', as in other cases the advertised price
is the only price available to accepted customers.[19]
Quotation searches do not mean that a member of the public will
be accepted for the product at the price quoted.[20]
10 Ev 25 Back
11
Ev 27 Back
12
Ev 25 Back
13
Ev 25 Back
14
Ev 26 Back
15
Q 174; The Consumer Credit (Advertisements) Regulations 2004 ((SI
2004/1484) Back
16
Ev 61 Back
17
Ev 61 Back
18
Ev 61 Back
19
Ev 27 Back
20
Q 88 Back
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