The financial regulator, the Financial Conduct Authority, says it’s concerned that consumers are being confused by credit reference agencies.
If you’ve ever taken out a loan, a credit card or signed up for something like a pay monthly mobile phone contract, the lender will have checked your credit file. Three major credit reference agencies collect this information. You have the legal right to access your credit report (which is a snapshot of your file) free of charge from each of the credit reference agencies.
The three major credit reference agencies are Equifax, Experian and TransUnion and there are also around 20 smaller, newer companies. Around half of lenders provide information to two, if not all three, of the big credit reference agencies. But it’s not something you’d be able to find out easily unless you’d been turned down for credit.
What’s on your credit report?
Your credit report is a mixture of publicly available information, such as whether or not you’re on the electoral register, and private information, such as whether you made your credit or loan repayments on time.
Many people never see a copy of their credit report. Research by Which? in 2016 found that over half of people had never set eyes on their credit report. That means they don’t know what information lenders are relying when deciding whether or not to give you a loan or credit card.
And, although the industry says that mistakes are rare, if you don’t know what’s on your file, lenders could be relying on that inaccurate information.
Another problem is that the credit rating system works on a ‘guilty until proven innocent’ model. This means that if you don’t have credit, maybe because you prefer not to have a credit card, and rely on your debit card instead, you’ll probably find it harder to get credit. You can find out how to improve your credit score here.
What the Financial Conduct Authority is doing
The FCA plans to take a closer look at information that credit reference agencies compile and hold. It says it’s concerned about several areas:
- Concerns about quality and consistency: The FCA says it’s previously identified potential problems with things like consistency of credit information. If information isn’t accurate, for example, someone could be turned down for a loan or credit when they needn’t be, or offered credit at a much higher interest rate.
- The level of competition between the credit reference agencies: It’s the lenders that choose which credit reference agency/ies they will supply with data. But the FCA is concerned that there’s not much switching between providers.
- People aren’t very aware of how credit reference agencies use their financial information. Which? found that 53% of people have never checked their credit report and 36% incorrectly thought that checking their credit score regularly would damage their credit rating.
- People with little or no credit history may be unfairly penalised. Research by Experian suggests that 5.8m consumers have limited or no credit history. This could restrict their ability to access numerous services. The FCA wants to look at how much harm this may be causing some consumers.
The FCA is keen to get answers to some specific questions in this study. It wants to find out:
- How accurate is the information that credit reference agencies provide?
- How do consumers use credit information services?
- How well do consumers understand credit files and credit scores?
The FCA will publish its early findings in the spring of 2020.
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