Cryptic and costly: Credit reporting system in need of reform, Which? warns

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. 

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. 

This was the case for Peter, who told Which? he has battled to fix his credit report for the past two years. Peter was left confused after he was rejected for a credit card. His report showed he had defaulted on a payment with O2, but he had never held an account with them. Peter contacted O2’s fraud team, which 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 they could not accept communications from O2’s customer service team, only O2 Fraud, so could not remove it. 

In October 2023, Peter took his case to the Financial Ombudsman Service and was awarded £300 in compensation from O2. However, in March this year he received a letter from his credit card provider informing him they 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, 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.

This was the case for Which? member Neil Foley who spotted a mistake on his own credit report after encouraging his friend to check theirs. Neil contacted British Gas, which acknowledged he had no debt with them, but separately told Equifax the data was correct and would not amend it. It was only after Which? contacted British Gas that it agreed to correct the error, apologised for the delay in fixing it and sent Neil a goodwill payment. 

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.”

-ENDS- 

Notes to Editors

Which? surveyed 4,193 adults in the UK between 5 and 15 July 2024. Fieldwork was carried out online by Deltapoll and data has been weighted to be representative of the UK population (aged 18+).

Which? also spoke to Peter and Neil between May and August about their experiences with the credit reporting system.

Right of replies

A spokesperson for O2 said: “We’ve spoken with the customer directly to apologise for the delay in amending his credit file. Due to a system error, after initially removing the flag, the debt unfortunately reappeared. We have now cleared the debt, updated his credit file and offered a further £200 on top of the £300 he’s already received as a gesture of goodwill.”

A spokesperson for British Gas said: “We’ve called Mr Foley to let him know we’re sorry for the delay in resolving this and that we’ve now put this right. The entry on his credit file has been removed and we’ll also be sending him a goodwill payment in light of what’s happened.”

About Which?

Which? is the UK’s consumer champion, here to make life simpler, fairer and safer for everyone. Our research gets to the heart of consumer issues, our advice is impartial, and our rigorous product tests lead to expert recommendations. We’re the independent consumer voice that influences politicians and lawmakers, investigates, holds businesses to account and makes change happen. As an organisation we’re not for profit and all for making consumers more powerful. 

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