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(Alliance News) - The City regulator has moved to clamp down on credit rating agencies sharing patchy information with lenders, which it said can lead to people being "cut out" of the credit market or taking on debts they cannot afford.
The Financial Conduct Authority said changes were needed to make sure people's credit files better reflect their finances.
Equifax Inc, Experian PLC and TransUnion are the three largest credit reference agencies in the UK, accounting for almost all of the credit information sector.
People's bank accounts and regular payments, including missed payments, contribute towards their credit report, which can be shared with lenders when deciding whether to approve or refuse an application for credit.
But the FCA found in its analysis that some people's credit files were not adequately reflecting their financial situation, which could result in the wrong lending decisions being made.
For example, agencies did not have consistent information showing the number of defaults recorded on individuals' accounts, and there were significant differences in data between the 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 watchdog said its new proposals will require lenders to share credit information with agencies.
It will also introduce a common data reporting format to improve consistency and promote competition between credit rating firms.
"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.
It also found there is a lack of awareness among consumers about how their spending behaviour can affect their credit score, or how to access and dispute their credit information.
Mills said the proposed changes will 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.
source: PA
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