The way your credit report is compiled and the quality of the information it contains will come under scrutiny from the Financial Conduct Authority (FCA), amid fears the market is not performing well for consumers.
The FCA has launched a survey of the credit information market, which will include credit reference agencies (CRAs) such as Experian, Equifax and Transunion.
The regulator is concerned about the coverage and quality of credit information collected by rating agencies and used by financial providers; the effectiveness of competition between credit rating agencies; and the extent to which consumers understand theirand .
Here we explain what you need to know about the survey and how you can contribute to the survey.
What is the credit information market?
In the UK there are three main credit rating agencies which collect information from industry (such as banks and utility companies) and public sources (such as courts and electoral rolls) to build your credit history. credit and your score: Experian, Equifax and Transunion (formerly CallCredit) .
This data collection forms the basis of the credit information market and plays a huge role in our daily lives.
Your credit report can be the deciding factor in whether or not you qualify for financial products like mortgages, loans, and credit cards — and can often determine how much you’ll pay.
But credit scoring also plays a role in other aspects of your life, like the identity checks needed to rent a house or hold a senior position.
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Why is the market studied?
With four out of five adults holding at least one credit or loan product, the FCA is keen to ensure that this market functions as well as possible.
But the regulator has expressed concerns about the quality of information provided, competition between rating agencies and how consumers interact with their credit reports.
He also highlighted how the market is changing rapidly as new technologies such as Open Banking make it easier for businesses to access information about potential borrowers.
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What will the FCA be watching?
The FCA has identified three main areas of concern, along with two more that it plans to look into.
1. Purpose, quality and accessibility of credit information
It is essential that credit rating agencies collect good quality, accurate and complete credit information so that lenders can make a fair assessment of your creditworthiness.
However, asmistakes can creep in and have a devastating impact on key life moments, like renting a home.
The FCA says poor credit information could lead to harm if someone is wrongfully denied credit or offered credit they cannot afford.
2. Market structure, business models and competition
The FCA is also concerned that some of the current market features indicate weak competition among credit rating agencies.
Currently, the market is concentrated around three major credit rating agencies and around 20 smaller companies.
Some lenders have reported concerns about the cost of switching to another provider or using more than one ARC to make decisions.
3. Consumer engagement and behavior
Whether consumers really understand the credit information market is also a concern for the FCA.
Last yearthat only 5% of people could correctly identify the impact of five daily actions on their Experian credit score.
And in 2016 credit report and 36% mistakenly believed that checking their credit report would impact their credit score.found that 53% of people had never checked their
Low awareness and understanding could lead to consumers missing opportunities to improve their credit score and reduce the cost of future borrowing, the FCA warned.
4. Opportunities and risks of open banking
The credit information market is going through a period of change, with developments such as Open Banking providing new sources of data for credit reporting and scoring.
Whenthey saw Open Banking as an opportunity to help people with limited credit profiles access borrowing by recording never-before-used data, such as lease payments.
Rating agencies also believe that open banking will streamline existing processes, such as applying for a mortgage without the need for printed bank statements.
However, information-unlocking technology has drawbacks that lenders and credit rating agencies couldn’t see before, including the risk that race, gender or religion could factor into credit scores.
The FCA says it will look into the opportunities and potential risks or ethical considerations that Open Banking presents to the credit information market.
5. The credit information market in other countries
The FCA will also look at how the credit reporting market works in other countries and what the UK could learn from it.
Who can contribute to the survey?
The FCA says it is not formally consulting on its investigation into the credit reporting market, but welcomes any views by the end of July.
It will primarily collect information from credit rating agencies, data contributors, credit information service providers, credit information users and consumer organizations.
If you have anything to add, you can send your comments to.
The FCA says it will report its findings by spring 2020 and, where appropriate, offer potential solutions.
Who? welcomes the credit market inquiry
Who? has already plunged intoto help consumers better understand how it works.
Gareth Shaw, CFO at Which?, said: Our research shows that many people are confused by credit reports and scores, and a lack of transparency about how our lives and financial habits are rated by credit reference agencies can be frustrating for consumers when they make important decisions – so we welcome the regulator’s decision to review the functioning of the market.
“In the meantime, the big credit reference agencies must work harder to encourage consumers to check their credit reports regularly, and lenders must also work to be clearer about the agencies they use to assess credit applications, so consumers can investigate and dispute any potential errors. if they are rejected.