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Do credit reference agencies have too much power over our lives?

Do the three biggest credit reference agencies have too much power over our lives, particularly our financial lives? This is a question that has been asked countless times by member of the public, economists and journalists alike.

Over the years, many stories have been released detailing how credit reference agencies have ruined chances of getting a mortgage, credit card or even a phone contract by not removing a default or by storing incorrect information.

In a world where money is so prevalent in every aspect of our lives, it can feel as though these agencies have absolute power over our financial past, present and future. A recent article in The Guardian showcased many stories where credit reference agencies had negatively impacted on a person’s borrowing capability by failing to remove defaults leading to people failing to get career advancement loans, phone contracts and securing a re-mortgage.

A default on your credit file whether it is from a county court judgement (CCJ) or a defaulted payment can have a big effect on the way companies and lenders view you and they could potentially refuse you as a customer or put you on a higher interest rate as a precautionary measure.

For most people, credit reference agencies have no effect on their day-to-day lives but for others, their presence and power has become a burden. A lot of people check credit reports until they find out that the data held on them is preventing them from getting the money or services they need.

Credit reference agencies, including Equifax, Experian and CallCredit, receive, store and rate information about the financial history of every person in the country. When you take out a loan, make debt repayments or hold a contract with a business, it will be logged, monitored and updated to give companies and lenders a picture of your trustworthiness and your affordability.

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CCJs, individual voluntary arrangements (IVAs) and bankruptcies will also feature on your credit report and they will stay there for six years. Once something like this is logged on your account, it will cause significant damage to your rating and it will likely harm your chances of obtaining credit.

All personal data and spending history about a consumer is passed across to credit reference agencies, and lenders warn customers there is no option to opt out. Any incorrect information, including IVAs, bankruptcies and CCJs, cannot be changed by anyone bar the company or organisation which submitted the information.

You would need to contact the company in question to try to get it removed and you can contact the credit reference agency and they will likely add a note to your file but until it is removed, it is likely to have a significant impact on your credit file and ability to borrow money.

As many of these companies charge a fee for you to see your credit report so you can gather details and attempt to change mistakes, those who have been previously affected by this sort of situation have argued that companies are profiting off an already bad situation.

The Information Commissioner’s Office (ICO) which regulates credit reference agencies spoke to the Guardian as part of their report; “Individuals do not really have a genuine choice as to whether their data is shared, as saying ‘no’ will effectively stop them getting the loan. It is unlikely that most people would consent to this sharing if they did have the choice, especially those with a poor credit history.

“The argument, which we generally accept, is that it is in the interests of businesses to be able to assess the chances that they will get back any money they lend. It is also ultimately in the interests of individuals, as it actually makes it easier to obtain credit overall, and also ensures that lenders do not lend money to people who can’t afford it.”

Currently there is not much we can do about the amount of information credit reference agencies hold on us and our financial lives however there are ways we can make sure that the information they hold is correct and not harmful to our ability to obtain credit, mortgages and contracts in the future.

  • Check your credit file – Firstly sign up with a free credit reference agency, such as Noddle or Money Saving Expert’s Credit Club. This will give you the opportunity to see your report, find areas where you can improve and see any incorrect information that needs amending or removing.
  • Deal with debts – If you have any debts, whether unsecured such as credit cards and loans or secured such as a mortgage, you will need to meet the minimum payment on time every month. This ensures you build up a good relationship with your creditor and you are building up your credit rating.
  • Consider borrowing – Low levels of borrowing, particularly unsecured, are generally more appealing to lenders however little or no financial information on your credit report can make lenders wary. In this situation, it may be worth looking into taking out a credit card and making small, regular spends to build up a credit history. However, only do this if you can afford to make the minimum repayment every month and make sure it is paid on or before the due date.
  • Get on the electoral roll – Put your name on the electoral register and it will give credit reference agencies a reliable source to use when looking for your address, full name etc. Is your current or past addresses on your file are wrong? Get in touch to change this and check any previous electoral roll entries for yourself.
  • Take complaints to the Ombudsman – If after multiple attempts at trying to get incorrect information removed from your credit file you are still hitting a brick wall, then you can refer your case to the Financial Services Ombudsman. You can also report any concerns you may have about a credit reference agency to the Information Commissioner’s Office.

References and further reading

Header image – insidehighered.com

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