The consumer group warned that people are being left out of pocket and in the dark because the credit reporting system is “confusing and riddled with errors”, while also lacking transparency and accountability.
Which? surveyed more than 4,000 people and found that one in three (32%) respondents who had checked their report had discovered a mistake.
These errors can have a huge impact on people’s lives if they are turned down for financial products, and could even wreck their dreams of securing a home if they are refused a mortgage.
In theory, mistakes should be straightforward to correct. Consumers can notify the credit reporting agency, which then marks the information as in dispute and queries it with the firm. However, most people interviewed said they had to do most of the legwork to amend errors.
There are three credit reference agencies in the UK: Equifax, Experian and TransUnion. Each one collects its own data from lenders and open information sources such as the Land Registry and electoral roll.
But confusion over credit reports can lead to lengthy disputes. Which? cited the case of ‘Peter’, who told researchers he had battled to fix his credit report for the past two years. His report showed he had defaulted on a payment with O2, but he had never held an account with the mobile network.
Peter contacted O2’s fraud team, who told him they would remove the account from Equifax; however, when he checked again, it had still not been removed. Equifax then told Peter the reason for this was that it could not accept communications from O2’s customer service team, only O2 Fraud, so the error could not be removed.
In October 2023, Peter took his case to the Financial Ombudsman Service (FOS) and was awarded £300 in compensation from O2. However, in March this year, he received a letter from his credit card provider informing him that it would be increasing his interest rate due to changed circumstances, as the erroneous entry from O2 had once again been uploaded to his credit file. The information was removed and then added again for the third time. Eventually, Peter was awarded another £300 from O2.
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, more than half (53%) said the reason was due to their credit score being too low.
Over half (52%) of respondents also 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%) told the consumer champion they only did so with only one provider.
Most lenders rely on information from only one credit agency, but will not tell applicants which one, only adding to the uncertainty.
System should be ‘made much clearer and simpler’
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 (FCA) published a market study into credit reporting in December 2023, setting up a working group to make recommendations for 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.”
