Credit site could discredit lenders

A website that offers free credit checking will present information previously unseen by the public and the inaccuracies it reveals in people\'s records should worry lenders, says Ray Boulger

A new website, www.annualcreditreport.co.uk, is offering anyone who registers a free annual credit check after appropriate security checks. The information provided will be the same that lenders see which means a six-year payment history on loans, mortgages, credit cards and personal loans – including whether there have been any late payments. It will also show searches made, electoral roll information, County Court judgments and any personal insolvency or fraud warnings.

Barry Stamp, the company’s joint managing director, predicts that free online credit reports will provoke an avalanche of complaints from consumers who discover their records are incorrect. His advice for dealing with such errors is radically different from conventional wisdom as he says that requesting a notice of correction often effectively prevents applicants from obtaining credit in future.

“It almost destroys your credit file,” he says. “It means that lenders have to follow a manual procedure to decide whether to offer credit. The vast majority can’t be bothered to do this so they just decline you instead.”

Stamp recommends that anyone who finds an error in their report should contact the offending lending institution and get it corrected as soon as possible, although due to inefficiencies in the system corrections usually take at least a month. Anyone unhappy with the outcome has a right to complain to the Information Commissioner and can also pursue a claim for compensation for any loss under the provisions of the Data Protection Act 1998.

In a survey the website undertook last month a third of people found errors on their credit reports. Although some of these may have been minor, about 30% were considered to be serious by the respondents. There is a statutory right under Section 159 of the Consumer Credit Act 1975 to have errors corrected quickly but if these figures are even remotely accurate for the population as a whole, they are worrying.

With the increasing use of automated credit decisions, untouched by human hand or brain, such a huge number of errors is bound to mean that many people are either wrongly declined credit or only offered it at higher interest rates.

Although using credit scoring to assess credit decisions has proved a reliable way of assessing applications, such decisions depend on the information used being accurate. If you put rubbish in you get rubbish out.

Lenders should be doubly worried about the high level of inaccuracy discovered by the survey. In respect of new business this means systems will sometimes decline applications they would have accepted if credit files had been correct. As a supplier of information, the website should also be concerned about providing inaccurate and libellous information.

Credit checks are often undertaken when people apply to rent properties and in some cases – especially in financial services – it’s a legal requirement that employers search prospective employees’ files. So inaccurate information could mean missing out on your dream job.

Ray Boulger – senior technical manager, John Charcol