One in five people who check their credit report find an error, according to research that underlines worries over the quality of information held about people’s finances.
The research by Which?, the consumer group, uncovered a significant number of errors on people’s reports, many of which went uncorrected. It also revealed widespread confusion about what information is recorded in credit reports and how this is used.
The findings come as the Financial Conduct Authority, the City watchdog, is conducting a review of the credit information market, amid concerns regarding the purpose, quality and accessibility of the information.
The consumer group, which questioned more than 1,000 people in its survey, also found that four in 10 people have never checked their credit report. One-third of respondents mistakenly believed they would be charged a fee to check their report, while a similar number thought checking too frequently would negatively affect their credit score.
Andrew Hagger, personal finance expert and founder of consumer website MoneyComms, said: “It’s worrying that people don’t appear to appreciate the importance of having and managing their credit report. It can have a major impact on your finances and inaccuracies on your file could see you pay well over the odds on all kinds of finance, even your mortgage.
“[There is] no excuse not to take charge of your report to ensure it’s a true reflection of the way you manage your money,” he added, pointing to free services from companies such as TotallyMoney and ClearScore, which email a user’s report to their inbox every month free of charge.
According to the Which? research, of those who checked their credit report, one in five found an error such as an incorrect address, a false record of missed payments, or a credit product fraudulently taken out in their name. Of those that found an error, just over one in five did not ask for it to be corrected.
The researchers also found confusion over the role that credit reference agencies play over whether a credit application is accepted or rejected. More than half of respondents incorrectly thought credit reference agencies — the main ones are Equifax, Experian and TransUnion — can influence the outcome of an application.
Half of those surveyed thought every credit reference agency holds the same information on an individual. However, lenders will not always share information between agencies, meaning an individual’s report and score may vary between them.
The most common myth was that a credit blacklist exists, with eight in 10 people believing they could be banned from borrowing.
Jenny Ross, editor of Which? Money, said: “Credit reports help to give people more clarity over their financial health. However, our findings suggest that many are still in the dark about how their reports are compiled and used, potentially harming their ability to access credit in the future.
“Credit reference agencies and lenders must work harder to demystify the world of credit reports and scores — for example, by giving clear and constructive advice if an application is rejected, so prospective borrowers can take steps to improve their chances of being accepted in the future.”
A person’s credit reports contain information on their financial behaviour taken from the past six years. It provides lenders with a summary of how well the person manages their finances, such as their mortgage, credit cards, overdrafts, loans, mobile phone contract, and even utilities such as gas, electricity and water. Lenders then use this information to decide whether to lend to that person and which rate to offer them.
Some employers, landlords and insurance providers may ask to check a credit report to understand a person’s financial situation or to verify that the details they have given are correct.
John Webb, consumer affairs expert from Experian, said people should check their credit score to see where they stand.
“You wouldn’t apply for a job and let an employer look at your CV without first checking to make sure it’s up to date and paints the best picture of your suitability for the role. So don’t apply for credit before giving similar attention to your credit report.”