Call for reform of credit reporting system

Which? is warning that people are being left out of pocket and in the dark because a credit report system that is confusing and riddled with errors lacks transparency and accountability.

The consumer champion’s nationally representative survey of more than 4,000 people found that one in three (32%) respondents who checked their report discovered a mistake. These errors can have a huge impact on people’s lives if they are turned down for financial products and even wreck their dreams of securing a home if they are refused a mortgage.

Ordinarily, mistakes ought to be straightforward to correct. Consumers notify their credit reporting agency (CRA), which then marks the information as in dispute and queries it with the firm. However, most people the consumer champion interviewed separately said they had to do most of the legwork to amend errors. 

Which says that there are three versions of credit reports, provided by Equifax, Experian and TransUnion. Each one collects its own data from lenders and open information sources such as the Land Registry and electoral roll. Only a little over one in three (35%) correctly said there are three different versions.Confusion over credit reports can lead to lengthy disputes. If details on credit reports are inaccurate consumers may not find out until it is too late.

One in seven (14%) respondents who applied for credit said their application was refused. Among these, over half (53%) said the reason was due to their credit score being too low. 

Which?’s survey found that over half (52%) of respondents thought they would be alerted if a negative entry appeared on their credit report, but this is not always the case. The only way to know if an ‘adverse account’ (a debt or a default) has appeared on your file is to check yourself. Of the survey respondents who had checked their credit score or report, seven in 10 (70%) did so with only one provider. Most lenders rely on information from only one CRA, but will not tell applicants which one, only adding to the uncertainty.

Which? is calling for the system to be reformed so it is simpler to find information and easier to amend mistakes that could stay with consumers for a long time. The Financial Conduct Authority published a market study into credit reporting in December 2023, setting up a working group to make recommendations on the reform of industry governance arrangements. 

The consumer champion wants the regulator to take forward recommendations that increase consumer understanding and trust in the system. 

Sam Richardson, Deputy Editor of Which? Money, said “The credit reporting system has long been shrouded in mystery, but as our research reveals, it can have a big impact on those caught up in fixing mistakes. 

“We’ve found that many people are left to correct mistakes on their report themselves, despite the onus being on credit reference agencies and lenders to fix errors.  Which? wants the system to be made much clearer and simpler, with mistakes easy to rectify.”