What is a credit reference agency?

A business may need to take out credit at some point, whether it’s to manage cash flow better or to finance an expansion.  In order to do so, businesses need to seek funding through a credit reference agency. 

What exactly is a credit reference agency?

A credit reference agency is a private company that stores detailed information about the credit and payment history of businesses. So, these companies won’t be making the decision about whether or not the business’s credit has been approved, but will instead be able to provide an objective overview of your financial reliability to potential lenders and other authorised entities. 

The role of the credit reference agency

Credit reference agencies facilitate lending, assessing the risk for potential lenders so that they are able to evaluate the likelihood that you’re able to repay your debt. This way, lenders can then make informed decisions, offer appropriate interest rates and extend credit to those who are able to manage debt effectively. 

Ultimately, credit reference agencies provide transparency in the lending process, which helps to prevent reckless lending and borrowing. Many different entities use credit reports, like employers, landlords, insurers and utility companies. 

Data collection and utilisation

In order to be able to build up a picture of your credit history, credit reference agencies gather data from a vast network of sources, for example: 

  • Lenders and banks: Information on business credit cards, loans, mortgages, overdrafts, and payment history (both good and bad).
  • Utility companies: Records of your payments for gas, electricity, water, and sometimes even mobile phone contracts, if appropriate. 
  • Public records: Information from courts, such as bankruptcies, Individual Voluntary Arrangements (IVAs), and County Court Judgments (CCJs).

This data is then processed by the credit reference agency and is then analysed to understand the financial behaviour of your business. So, if you’re able to make payments consistently, you’ll be seen as reliable. If you struggle to make your payments on time, however, you’ll be seen as a higher risk. 

Credit report

All of the data that is collated by the credit reference agency will be used to create a credit report, which will present your financial history in a clear way to lenders. The information that will be shared with lenders includes the following: 

    • Company identification and background (for example, full company name, company registration number, registered address, trading address)
    • Financial filings (for example, filed accounts, turnover/revenue, net worth, etc.)
    • Payment history and credit performance 
    • Public record information (for example, CCJs, insolvency records, or Gazette notices)
  • Director and shareholder information 
  • Credit score and risk rating
  • Search history

It is essential that the information on your business’s credit report is accurate to avoid any implications for its financial future. If, for some reason, you notice that there are a few discrepancies on your business credit report, be sure to report it to the credit reference agency immediately so that changes can be made. 

Credit score

Once all of your data has been processed into a credit report, you’ll receive a credit score, which is a three-digit number that summarises your creditworthiness. This will allow you to have access to the financial products and services, such as: 

  • Access to credit: having a strong credit report and score will make it easier to get approved for loans, mortgages and credit cards with more favourable interest rates
  • Cost of borrowing: lenders will offer you better terms if you’re considered a lower-risk borrower, which will save you a large amount of money in the long run. 
  • Beyond lending: a strong credit report and score will positively impact your ability to rent a property, secure certain jobs and influence your insurance premiums. 

Conversely, a poor credit report due to missed payments, defaults, or high debt can lead to loan rejections, higher interest rates, and difficulty accessing essential services.

Credit reference agency for businesses

Credit reference agencies are an important partner for businesses across various sectors. By maintaining a good relationship with your credit reference agency, your chances of growing and securing essential resources will significantly improve. 

Also, you’ll have access to favourable financing, be able to secure trade credit and build strong partnerships with suppliers. 

Creditserve’s credit check packages will help you run credit checks on any company you may be looking to work with. With our services, you’ll be able to assess the risk efficiently, making informed decisions that allow you to mitigate financial risks. 

Contact us at 01992 414222 for more information!