Firms that frustrate borrowers with baffling credit scores targeted by watchdogs

Borrowers frustrated by “black box” credit scores could be given greater rights after the City regulator announced a review of the industry.

Credit reference agencies, of which Experian and Equifax are the best known, gather information about consumer finances which can then be checked when someone applies for a loan or credit card.

They track a person’s history of paying bills on time, with defaults often making it harder for an individual to borrow money or get accepted for a credit card or mortgage. 

They are also notoriously hard to decode, with firms quick to cite data protection when rejecting an application. 

The Financial Conduct Authority (FCA) announced this morning it will review the market to determine how it can better work for consumers, particularly those who are vulnerable. It said four in five hold some form of credit or loan.

Errors made by credit reference firms can have a drastic impact on a person’s score which can be hard to rectify.

In one previously reported case a consumer was unable to obtain a mortgage thanks to a black mark on her credit report relating to a supposed £10 default on a mobile phone contract, despite her never having been a customer of the firm in question.

Financial complaints service Resolver received more than 2,000 complaints about credit reference agencies last year and 20,000 in the past five years.

Christopher Woolard, a director at the FCA, said: “Through the study we will seek to get a better understanding of how this vital market works and will identify remedies, where appropriate, to make it work more effectively for credit information users and individual consumers. 

“This includes considering whether vulnerable customers are disproportionately affected by the way credit information is used, and whether any alternative approaches might deliver better outcomes for consumers.”

Gareth Shaw, from Which?, said many are confused by their credit score and the lack of transparency could lead to frustration.

He added: “The big credit reference agencies must work harder to encourage consumers to check their credit reports regularly, and lenders should also strive to be clearer about which agencies they use to assess credit applications so consumers can investigate and challenge any potential errors if they are rejected.” 

James Jones, head of consumer affairs at Experian, welcomed the FCA review. He said: “We are proud to put the consumer at the very heart of our business and are committed to continue our significant investment in innovative new programmes and technologies to help keep credit reporting fair, responsible, accurate and transparent.”

Patricio Remόn, of Equifax, said: “It is vital that the credit information market works well and helps protect vulnerable consumers, improve financial inclusion and ensure people can access appropriate financial products.”

A spokesman for TransUnion, another reference agency, said: “As a business, we consistently strive to improve and enhance our offering, so we fully support this initiative and are working closely with the FCA to provide information for the market study.”

Equifax courted controversy in 2017 after a data breach led to the personal details of 145 million people in America to be leaked. The firm blamed weaknesses to internal software.

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