In the complex world of finance, credit reference agencies shoulder the responsibility of supporting informed decision-making for both lenders and individuals. Here at TransUnion, we see this as an opportunity for making trust possible between businesses and consumers, so that they can transact with confidence.
As the global financial landscape becomes increasingly data-driven, the role of credit referencing has transformed. To understand how the sector will adapt to the challenges of the future – which is particularly relevant in light of the current market study being undertaken by the Financial Conduct Authority (FCA) – it is useful to reflect on how credit reference agencies have evolved.
The evolution of credit referencing
The history of credit reference agencies dates back over a century, originating in the US to facilitate retailers’ sales via instalment loans. Initially, these companies served as repositories for manually submitted financial data from businesses to assess creditworthiness.
Over time, credit reference agencies expanded their scope to provide a comprehensive view of an individual’s credit history, driven by the digitisation of data analysis since the 1960s. This innovation fuelled the global expansion of credit reference agencies, with significant growth in the UK during the 1990s and the early part of this century.
Digitisation has expanded the sector beyond traditional credit data, incorporating a broader range of information, from utilities to rental payments. This comprehensive credit picture enables lenders to make more accurate credit assessments, and its uses extend well beyond the financial sector.
Having been established in 1968, TransUnion operates in over 30 countries worldwide and is a leading credit reference agency in the UK. We’ve long championed innovation, having led several industry firsts to support responsible lending. For instance, we established the Over-Indebtedness Initiative in 2006, collaborating with the UK’s main banks to improve their understanding of customers’ indebtedness and repayment capacity.
We were also the first UK credit reference agency to introduce free credit scores for life, empowering individuals to access their credit information and make informed financial decisions. TransUnion credit scores are now widely available via our partnerships with leading banks, finance providers, and platforms like Credit Karma, TotallyMoney and MoneySuperMarket.
Credit score tools have become increasingly sophisticated, with the likes of our Score Simulator, which allows consumers to test the potential impact of different financial decisions on their credit score.
We’ve also recently helped businesses to support their customers through the cost of living crisis, by implementing a new cost of living model within our Affordability Screening that can be used to find a more accurate value of the customer’s disposable income.
The use of credit information now extends well beyond financial services, however. The gambling sector is one example where we’ve been able to apply our learnings on affordability to support safer gaming.
Adapting to changing consumer habits
In 2022, TransUnion was the first UK credit reference agency to include buy now, pay later data in consumer credit reports, reflecting the changing landscape of consumer payment preferences as this sector saw sustained growth.
When buy now, pay later companies share this information, it supports consumers using this kind of point-of-sale finance and enables finance providers to ensure affordability and sustainability. We encourage all buy now, pay later providers to contribute their data for greater financial inclusion and more accurate creditworthiness decisions.
Preparing for the future
Credit information has become crucial in many aspects of daily life, from securing a mobile phone contract to obtaining a mortgage, and credit reference agencies play an increasingly important role in helping people achieve their financial goals.
We’ve been supporting the FCA’s Credit Information Market Study which examines some of these topics and have already implemented a range of initiatives aligned to its major themes, such as helping consumers better understand their credit information. With the findings expected later this year, the study is likely to propel further evolution, aligning closely to Consumer Duty regulation, and helping to ensure consumers can achieve the best possible outcomes.
A crucial part of evolving is being open to new ideas and expanding partnerships and we’ve taken a lead here with commercial developments such as our recent investment in Bud Financial – a leader in Open Banking and data intelligence – and Monevo, which provides pre-qualification services to help improve access to credit for consumers.
We also work closely with the wider industry, and recently created guidance for the government’s Mortgage Charter relief scheme, which provides consumers with new flexibilities to manage their mortgage payments over a short period, whilst minimising any impact to credit scores.
Driving financial inclusion
TransUnion is dedicated to advancing financial inclusion through a wide range of initiatives, one avenue being our industry-leading Credit Scores Explained programme for schools and universities. By actively engaging with students, we play a vital role in promoting credit awareness and helping prepare young people to be financially fit for adult life.
Ultimately, we believe that a combination of innovation and education will be pivotal to the future of credit referencing. By equipping consumers and businesses with the knowledge and understanding of credit information, they can navigate and benefit from the valuable insights it provides. This approach not only fosters financial inclusion but also drives positive economic growth and prosperity for all.