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In The Spotlight
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Checking your credit report explained
Tuesday 9th February 2010With over 20 years of consumer-facing experience in the credit industry, Helen Lord is founder of CreditReportAdvice offering consumers independent, impartial and expert advice to ‘demystify’ the world of credit reports.
The Treasury Select Committee has recently questioned whether individuals should be able to obtain their credit report for free – an issue which has been raised a number of times over the years. Currently there is a £2 statutory fee for a credit report. One view is that the fee may deter people from checking their credit report – it is generally recommended by government and consumer groups that consumers check their credit report on a regular basis.
Inaccuracies on credit reports can not only prevent people obtaining credit but, in some instances, can prevent them from being offered the best interest rates. Credit reports will also highlight instances of identity fraud – checking a credit report frequently will allow consumers to identify fraud. The earlier fraud is identified, the easier it is for the consumer to resolve any problems and return their credit information to its former state.
So, will free credit reports encourage people to check their information? Twenty years ago, people generally only checked their credit report if they had been declined credit – credit reference agencies received up to a 100 credit report applications a day. Any queries about the data were usually limited to whether or not a court judgment or a defaulted account were paid.
Throughout the Nineties awareness increased and requests for reports were increasing between 30 and 40% annually. Credit monitoring was then introduced where people could look at their report on-line and on a regular basis. Many consumers who would typically have requested a one-off report opted to use this service instead. Rather than the majority of requests being made because a credit application had been declined, more than 50% of requests were made because people were worried about identify fraud, wanted to check that the information was accurate and proactively look at their information before making an application.
However, I would still question whether the majority of people really understand the lending process. Do people understand the wealth of information that is held about them? I doubt it. They may expect to see details of their credit cards but I would question whether they would expect to see utility and mobile phone accounts or links to previous and forwarding addresses. I also doubt whether most people know the extent to which their credit history is used. Do they realise that it is not simply used for credit vetting but is also used for ongoing account management, that it is used to help authenticate them by both the private and public sectors?
People can already obtain free credit reports by utilising the free trial of a credit monitoring service or, if they are in financial difficulty, by contacting a money advice organisation. Removing the £2 fee may encourage some consumers who would not typically obtain their credit report to do so. However, I think the reality is that many people will only request to see their information when it becomes a barrier to them obtaining credit.
While there has been an increase in the number of credit report requests the volume remains low as a percentage of the population. There have been many consumer awareness campaigns over the years but I believe that people still do not fully understand what a credit report is and how it is used. The lending process is complex and until there is more clarity in the public domain I don’t think most people are going to rush to see their information – whether there is a £2 fee or not.
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