‘Confusing’ credit score system leaving people out of pocket

The UK’s credit reporting system is under fire for being confusing, error-prone, and lacking transparency, as Which? is urging for reforms.

The consumer advocacy group said "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".

Which? added that errors on credit reports are leaving individuals financially vulnerable, with many consumers unaware of mistakes until it is too late.

A survey conducted by the consumer body of more than 4,000 people found that one in three respondents (32%) who checked their credit report discovered inaccuracies. These mistakes could result in being denied financial products or even being refused a mortgage, potentially derailing major life plans.

While correcting these errors should be a straightforward process, Which? found that most consumers end up doing the bulk of the work themselves. Under the current system, consumers must notify their credit reference agency (CRA) of errors, which are then marked as in dispute while the CRA contacts the lender. However, many told Which? that this process was anything but simple.

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The UK’s three major credit reporting agencies – Equifax, Experian, and TransUnion – each compile their own versions of credit reports, drawing data from lenders, the Land Registry, and the electoral roll. Despite this, only 35% of survey respondents were aware that three different versions of their credit report exist, adding to confusion over which agency holds relevant information.

This lack of clarity can result in drawn-out disputes, as was the case for Peter, who told Which? that he had spent two years trying to correct a false entry on his credit report. Peter discovered he had been rejected for a credit card due to a supposed default with O2, despite never holding an account with the company.

Although O2 acknowledged the error and promised to remove the false entry from Equifax, the mistake persisted, bouncing back on Peter’s report multiple times. After taking his case to the Financial Ombudsman, Peter was awarded £600 in total compensation from O2, but the incorrect information caused repeated financial disruption.

Neil, another Which? member, discovered a mistake on his credit report only after encouraging a friend to check theirs. British Gas had wrongly reported that Neil had outstanding debt, which it initially refused to correct, despite acknowledging that no debt existed.

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Errors in credit reports often go unnoticed until an individual applies for credit. One in seven respondents (14%) said their credit applications were rejected, and over half (53%) of these refusals were due to low credit scores.

Yet, many consumers are unaware of wrong entries until they check their reports. Over half (52%) of respondents believed they would be alerted to negative changes in their credit file, but this is not always the case, leaving people in the dark about issues that can impact their financial standing.

The survey also revealed that 70% of those who checked their credit report only did so with one provider, even though lenders may rely on different CRAs. Most lenders use data from only one agency, but applicants are rarely told which, 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 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.”

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

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