The UK financial watchdog on Tuesday called on credit reference agencies to improve the quality of their data, following concerns that millions of people could be excluded from financing due to inaccurate information.
The Financial Conduct Authority’s interim report into the credit information market urged companies to make it easier for users to access their data, which would make factual errors more apparent.
“It is vital that the credit information market works effectively for firms and consumers,” said Sheldon Mills, executive director for consumers and competition at the FCA.
“We want to see industry reform to help deliver the changes, but in the meantime, it is important consumers know how to access their credit information and talk to their lenders if they are facing difficulties,” he added.
Credit reference agencies collate data on customers that is used by banks and other lenders to inform decisions around issuing finance.
The FCA said the credit information market, which was worth about £800mn in 2020, was “highly concentrated” around three companies: Equifax, Experian and TransUnion.
But there were “significant differences” in the information held by the agencies, the regulator said. The three cited companies only held consistent data on the number of credit defaults for about 30 per cent of users.
An estimated 7mn Britons were at risk of exclusion from mainstream financial services due to limitations in the rating system, according to a report released in February by software company Lexis Nexis Risk Solutions.
A report released by Experian in March also estimated that more than 5mn people were “credit invisible” and at risk of financial exclusion, especially groups such as young people and individuals who had recently moved to the UK and therefore lacked a credit record.
The FCA also pointed to areas of innovation within the sector, including open banking, which allows consumers to share their financial history with trusted third parties, and which can provide lenders with real-time data on financial health and expenses.
A number of community lenders, which support those facing financial exclusion from mainstream lending, use open banking to assess applications for smaller short-term loans.
“Fifteen per cent of customers we were able to accept recently would not have been able to proceed if we’d made an assessment based on credit reference agency information,” said Tim Rooney, chief executive of Salad Money, a non-profit lender that specialises in lending to NHS and other public sector employees.
The FCA recommended creating a new body with a broader remit than the existing committee to oversee the credit information market, and called for the sector to simplify the process by which consumers can dispute or update their data.
The watchdog found that more than 40 per cent of customers they surveyed were unaware that they could request a free report on their credit rating.
Experian said it welcomed the FCA’s recommendations and believed that improving credit information could “help deliver a better and more equitable credit market”.
TransUnion said it had supported the FCA’s findings and that it would be reviewing the recommendations.
“We . . . will continue to work closely with the FCA and wider industry to sustain a fair and robust credit ecosystem, with consumers at the heart of everything we do,” it added.
The FCA has asked for public feedback on its findings to be delivered by February 24 2023.
