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Buying any property is a little like putting together a jigsaw puzzle. For example, you'll need:

- a deposit (assuming you're not a cash buyer);
- to decide where you want to buy;
- to decide what type of home you want to buy (style, floor size, number of bedrooms etc);
- current sold property prices to fit with your purchasing power and with what you want to buy; and
- a mortgage (again, assuming you're not a cash buyer).

Whatever may be changing on the economic stage, credit reference agencies continue to operate as they have always done - and they play a critical role for anyone seeking a mortgage.

Most UK mortgage lenders use one of the three main credit reference agencies:

-Experian
-Equifax
-TransUnion

NOTE: you won't know which agency your lender uses. This makes it important to pay attention to your file at all three agencies.

What are credit reference agencies?

You're almost certainly familiar with the phrase but do you know what a credit reference agency does?

Credit reference agencies are independent organisations that hold sensitive financial data about individuals. The information is held securely, which means it can be accessed only by the person to whom it relates and, in certain circumstances, by a prospective lender.

Lenders of all types use the information contained on an individual's file to assess that person's creditworthiness. Clearly, this benefits the lender, who doesn't want to lend money to someone who may default on the repayments. However, it also benefits the would-be borrower by providing a further safeguard against getting into unmanageable debt.

Credit reference agencies should also ensure that information held on an individual's file is accurate and up-to-date. However, we'll return to this point later in the article.

On the other hand, credit reference agencies do NOT:

- make decisions about a person's creditworthiness;
- approve applicants for a loan, mortgage or other form of borrowing;
- make or maintain lists of people deemed not creditworthy;
- provide specific information explaining why someone has been refused credit

What information do credit reference agencies hold?

The precise information held varies from agency to agency and person to person. However, you might expect a credit reference agency to hold some or all of the following information about you:

- your name;
- your current address;
- any past addresses that you have lived at as an adult over the previous six years;
- whether or not you are registered in the electoral roll;
- the number of accounts you have held over the past six years, and information on when each was opened;
- a list of your regular payments;
- a list of any missed or late payments;
- the amount of credit available to you, and the amount of credit you are currently using;
- details of anyone with whom you are financially associated, for example, someone with whom you share a joint mortgage;
- details of any bankruptcies, IVAs, CCJs or defaulted payments over the past six years.

Where does a credit reference agency obtain its information?

Information is collected securely from publicly available records, such as the Individual Insolvency Register. It is also collected from companies with which you have a relationship. This might include the mobile phone company that supplies you with your monthly phone contract and the company that is leasing you a car. It probably also includes your household utility suppliers, your bank(s) and building society, and, of course, any mortgage provider.

NOTE: Not every company shares information about its customers with all three credit reference agencies. Moreover, the type of data shared may vary from company to company.

Checking your credit record

Given the information typically contained on the average credit report, it's fairly clear why you should ensure that it's correct. As we've already noted, credit reference agencies attempt to ensure that the information they hold is accurate and up-to-date. However, the system is not foolproof. Sometimes this is because, for example, an individual hasn't updated their address with their bank or they haven't registered on the electoral roll. Occasionally, however, inaccurate information on a credit file is a direct result of fraud. Whether or not you have any intention of applying for any form of credit, the risk of fraud and identity theft is a crucial reason for checking your credit reference record regularly.

Most individuals' records are updated every 4 to 6 weeks, typically when the credit reference agency receives updated information from companies. Although you have to register to do so, checking your file is free of charge.

NOTE: It's good practice to check your credit files on a monthly basis.

Why is your credit score different at each credit reference agency?

Each of the three main agencies uses a different scoring system. This means it's not possible to compare them side-by-side. More fundamentally, each agency may take into account slightly different information.

NOTE: Find out what counts as an excellent, good, average etc. score at each agency. This is how best to monitor your credit position.

What happens when you apply for credit?

When you apply for any sort of credit, the prospective lender wants to be as sure as possible that you will be able to repay the money advanced plus the attached interest. This is where credit reference agencies come into the picture. A lender will use the information in your report to assess whether or not to grant you the credit you've applied for.

NOTE: Different lenders use different criteria for assessing creditworthiness. If you're refused credit and want to know why, the best place to find out more is the lender concerned.

How to get your credit file in good shape for getting a mortgage

Although sold property prices may not be rising at quite the rate of recent years, mortgage interest rates are climbing in response to each interest rate rise put in place by the Bank of England. This is making borrowing more expensive than at any point in the last 15 years. Ensuring your finances are up to the task has never been more important. The following steps can help:

- Check the information on your file is accurate and up-to-date

- Pay down as much debt as possible before applying for your mortgage

- Avoid making additional credit applications in the six months or so before making a mortgage application

- If you're not already on the electoral roll, register straightaway

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