“Confusing” credit score system that is ripping people off

The UK's credit reporting system has been criticized for being confusing, error-prone and opaque. Which? pushes for reforms.

The consumer group said: “People are being left in the dark because a credit reporting system that is confusing and full of errors lacks transparency and accountability.”

Which? added that errors on credit reports leave individuals financially vulnerable and many consumers do not become aware of errors until it is too late.

A consumer association survey of more than 4,000 people found that one in three respondents (32%) who checked their credit report found inaccuracies. These mistakes could result in them being denied financial products or even a mortgage, potentially leading to the failure of important life plans.

While correcting these errors should be a straightforward process, which one? found that most consumers end up doing the majority of the work themselves. Under the current system, consumers must report errors to their credit reporting agency (CRA), which are then marked as disputed while the CRA contacts the lender. However, many said “Which?” that the process was anything but easy.

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The UK's three major credit reference agencies – Equifax, Experian and TransUnion – each produce their own versions of credit reports, relying on data from lenders, the Land Registry and the electoral roll. Still, only 35% of survey participants knew there were three different versions of their credit reports, adding to the confusion about which agency had relevant information.

This lack of clarity can lead to protracted disputes, as was the case with Peter, the Which? that he had been trying to correct an incorrect entry on his credit report for two years. Peter learned that his credit card application had been rejected due to an alleged late payment at O2, even though he never had an account with the company.

Although O2 acknowledged the error and promised to remove the false entry from Equifax, the error persisted and appeared several times in Peter's report. After Peter presented his case to the Financial Ombudsman, he was awarded total compensation of £600 by O2, but the false information repeatedly caused financial disruption.

Neil, another Which? Member, discovered an error on his credit report only after encouraging a friend to check his credit report. British Gas had incorrectly reported that Neil had outstanding debts and initially refused to rectify them, despite admitting there was no debt.

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The story continues

Mistakes on credit reports often go unnoticed until a person applies for credit. One in seven respondents (14%) reported having their loan applications rejected, and more than half (53%) of those rejections were due to low credit.

However, many consumers only notice incorrect entries when they check their reports. More than half (52%) of respondents believed they would be notified of negative changes to their credit file. However, this is not always the case, leaving people in the dark about issues that may affect their financial situation.

The survey also found that 70% of those who checked their credit report did so with only one provider, even though lenders may rely on different credit rating agencies. Most lenders use data from only one agency, but applicants are rarely told which one, adding another layer of uncertainty to the credit reporting system.

Sam Richardson, deputy editor of Which? Money said: “The credit reporting system has long been shrouded in mystery, but as our research shows, it can have a big impact on those who need to troubleshoot errors.”

“We have found that although credit bureaus and lenders are responsible for correcting errors, many people need to correct errors on their report themselves. Which? would like the system to be much clearer and simpler and errors to be easily corrected.”

The consumer association is calling for reforms to simplify the system and make it easier for consumers to fix errors.

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