The Financial Conduct Authority (FCA) are clamping down on credit ratings agencies who have been accused of sharing patchy information with lenders.
The City regulator warned this will lead to people being cut off from the credit card market and that changes are needed to ensure people’s files can reflect their finances correctly.
The three largest credit reference agencies in the UK are TransUnion, Experian and Equifax. People’s payments including any missed payments along with their bank account details contribute towards their credit report with the three reference agencies.
“Poor quality credit information can result in people being cut out of the credit market or taking on more debt than they can afford,” Sheldon Mills, executive director of consumers and competition at the FCA, said.
The report found that credit files did not reflect people’s financial situation accurately that will end up with the wrong lending decisions being made.
“Better quality credit information could, therefore, help to ensure that consumers are more likely to have access to credit they can pay back or are more likely to be denied credit they cannot afford,” the FCA said in its report.
The FCA report found there was a lack of awareness amongst consumers over their spending behaviour that can wrongly affect their credit score.
Mills said the proposed changes should now allow people to “more easily challenge decisions when mistakes are made.”
“These improvements will help deliver more effective lending decisions, particularly for consumers with limited or poor credit records, and support sustainable economic growth”, he added.