When Caroline Dix applied for a new mortgage after selling her home, she was astonished to be refused. Closer investigation revealed her credit rating had plunged overnight from excellent to very poor. Dix, of Yeovil, had no bad debts and her bank balance was unusually healthy from the proceeds of her property sale. Her offence was to have moved house. She discovered the credit reference agency (CRA) Equifax had recorded her new address inaccurately, so she could not be identified by potential lenders seeking a credit check.
"I provided Equifax with a letter from the electoral officer to show my correct address, which they just fobbed off, and I was at a loss what to do next,' she says. "It affected how I was able to move on with my life after a divorce, as I couldn't buy a new house."
Dix's plight is not an isolated one. Wilma Chapman's credit rating dropped 80 points after she moved flat and Experian failed to update its records. "I was correctly registered on the electoral roll, my bank had my updated details, as did my utility companies, HMRC, employer, the DVLA, etc, and yet seven weeks on, I was still paying pound;14.99 per month to Experian to view incorrect data it held on me," says Chapman.
Equifax, Experian and CallCredit are unfamiliar names to many of us , yet these companies can have a dramatic impact on our lives. Between them they hold detailed information about every adult's spending history for the past six years. It's impossible to secure a mortgage, take out a mobile phone contract or sign up to a utilities company without their sanction. In theory, it's the lenders who decide whether to take on a customer based on the credit history sold by the reference agencies; in practice, all three sell software to help financial institutions interpret their data. This software helps determine the individual's all-important credit score, on which the decision whether to lend or not is based.
It's a profitable business for CRAs. US-based Equifax, the largest of them, predicted global revenues of $2.67bn this year after expanding into credit card marketing. Experian, which began in the 70s, turned over $277m globally last year, while relative newcomer CallCredit, established by Skipton building society, made a pre-tax profit of pound;29.3m.
For the consumer, the power of these shadowy monoliths can prove a nightmare. In an investigation by consumer group Which? last year, a third of the researchers who accessed their credit file disputed the information held on it. In some cases,agencies had failed to update personal records, but mostly it's the banks and lenders who provide the information and only they are allowed to amend it if they get it wrong.
All a consumer can do if they find a mistake is raise a dispute with the CRA, which then liaises with the lender in question. The CRA has 28 days to get back to the customer, who in the meantime may find their creditworthiness compromised. If the lender refuses to change the disputed data the customer must make do with adding a statement of up to 200 words to their file explaining why they dispute the information. It's up to other potential lenders whether they take this into account.
Last year, judges at the UK's supreme court were told by Andrew Smith QC that the ability of a bank to "report" an individual to the credit reference agencies was "a powerful weapon which can have dramatic and disastrous effects". Smith was speaking in the case of Richard Durkin, who claimed HFC Bank prevented him from buying a home following a dispute over a credit agreement for a returned laptop.
A single missed mobile phone payment is enough to wreck a credit rating, but given 68% of the population has never scrutinised their credit files, according to a recent YouGov poll, mistakes and anomalies might only come to light when a loan falls through. One reader was turned down for a mortgage because of a pound;2 debt logged by his former mobile phone provider, of which he had been unaware. Another lost the chance to buy a house because his utilities company had logged an unpaid bill meant for another customer.
The situation is complicated by the fact different lenders sign up to different CRAs, and these don't share data with each other except in cases of fraud. This means an individual's credit score can differ according to which agency a potential lender uses. Anyone who wants to check their own status has to pay the three different companies to get the full picture. Under the Consumer Credit Act 1974, you have the right to receive your credit report within seven days for a pound;2 fee. But for unlimited access to your file, Experian and Equifax charge a monthly fee of pound;14.99. CallCredit offers the service for free.
For consumers there is no opt out. The Data Protection Act does not require the CRA, or any other organisation, to have your consent before they process your personal data. Any company who signs up to the CRA can view your file. Moreover, the Financial Services Act, which came into force last year, obliges lenders to perform tough new affordability checks that will only strengthen the power of CRAs.
Since April last year, regulation of CRAs is shared between the Information Commissioner's Office and the Financial Conduct Authority, which says it will be more rigorous in its requirements to treat customers fairly. CRAs must now report any amendment to a credit file within 10 days to all lenders who have performed a search. Customers are now able to complain to the Financial Ombudsman Service if they are dissatisfied with how an agency has handled a complaint.
How to keep a good credit record