It's vital to check your credit report periodically

The three credit reference agencies in the UK - Experian, Equifax and CallCredit have such a huge impact on our lives, but what happens when they get it wrong? Occasionally mistakes are made and it's vital to review your credit files periodically to check  for inaccuracies and mistakes as failing to do so could have dire consequences.

They're big, they're powerful and they're apparently all-knowing. Defaulted on a debt? Missed a loan repayment or simply forgotten to pay a utility bill? That information will go on their databases and your credit score will be affected.

Louise Hulland from BBC Watchdog undertook an investigation in October 2013 and also revealed her own personal experience. She commented  “my credit report was something I'd never even thought about, let alone worried about, but three years ago I applied for a mortgage and got rejected. I was stunned.

Why? Because an agency I'd never heard of could have such influence over my financial life. The insecure nature of freelance pay meant my credit rating was affected and as I changed addresses often I was also considered a credit risk even though I had never missed a rental payment. This information was sold to my bank. The result - I was prevented from buying a home.

Each agency has a unique way of rating you

With so much power in their hands, it's vital these agencies don't make mistakes. But they do. Asad Mushtaq was interviewed by Louise Hulland and he believed his credit record was squeaky clean until he started receiving job rejections.

Asad Mushtaq remarked: "I noticed that something wasn't quite correct. Every time I applied for a position I'd be refused due to having bad credit."

As he’d worked in finance himself, Asad knew that personal information can be collected by more than one agency. He assumed they’d all produce identical reports, but he was wrong. Each agency has a unique way of rating you, meaning you can have three separate scores. There were no problems with his Equifax or Call Credit reports, but Experian's credit report was very different.

Asad Mushtaq: "I was shocked to find on my Experian report that I had a CCJ which is a County Court Judgement which was settled and should not have been on there. Also an HSBC default on a student account. Noticing these two items made me very upset because they shouldn't have been there in the first place."

This wrong information had been left on Asad’s report for at least two years, and now it’s been corrected, his credit rating’s gone from fair to excellent. But why didn't they act earlier?

Asad Mushtaq said: "The impact has been very stressful for myself. I lost my father two years ago so my mother relies upon me financially. I've not been able to further my career and I'm still working in the same position I was two years ago. They're playing with people's lives and if the information is wrong, people are being badly penalised and it can affect them in many ways."

Like Asad, Louise Hulland fought a long battle to get her credit report changed.  She remarked “I used to think I was in a tiny minority, but not anymore”.

One in eight found errors

James Daley, Which? Money Expert said: "We have recently surveyed our members and one in eight said that they’d found errors on their credit file at some stage in the past. Of course, that's a really difficult situation to extract yourself from, but really important to ensure that you get that sorted so that lenders are making the right decisions."

Like me, most people don't realise there's a problem with their credit report until they receive a rejection. Bryan Childs also featured in the investigation following his experience of applying for new credit card.

He commented: "When I applied for the credit card I was expecting that I’d be a shoo-in for it and that I'd be accepted straight away."

But he wasn't. When the rejection came, Bryan checked his credit reports with one agency and all seemed fine. But then he looked up the file that Equifax had on him.

No credit history

Bryan Childs said: "I found to my horror that it was completely blank; they had no credit history for me at all. I've had credit cards, I've had loans, I've had a mortgage since 1995, I've had a good credit history ever since and they had no record of any of it. I just thought it was shocking."

With no credit history and therefore no proof of him being able to make payments, Bryan was turned down for the credit card. Equifax say they will update his report, but only if Bryan collects and sends them details of his loans and payments stretching back sixteen years.

Bryan Childs remarked: "As far as I'm aware, it's their job to keep track of this information and they weren't doing it properly. Equifax make their money from selling that information and I was having to go and find it all myself to provide them with their means to make money."

James Daley, Which? Money Expert suggests: "There are only three credit reference agencies in the UK and it's a real privilege for those companies to have the chance to have one of those three licences and with that privilege comes responsibility. They need to be ensuring that the data on everybody's file is correct and not just be relying on the lenders and utility companies to make sure it’s right."

Some credit reference agencies now do more than simply collect and sell personal data - they hold so much information about us, our spending habits and movements that they also provide a tracing service for third parties. So that means if you go missing without repaying a debt, they’ll help the people you owe track you down. But here too, they can make mistakes and cause chaos as a result.

Chased for a debt they did not owe

Denise and Paul Smith from Norfolk were chased by Debt collectors  for more than £7,000 all because of information provided by Equifax.

Denise Smith said: "In January this year we received seven letters from a debt collection agency and they made demands for return of unpaid council tax, housing benefit and various other things and bold red letters saying that they were going to send a van around and do not ignore this letter."

Not just frightening, but shocking because the couple don't owe anything. The debts have been run up by another Paul Smith. Equifax have handed the wrong man’s details to the debt collectors.

Paul Smith: "They’d made the connection between me and the other Paul Smith purely by date of birth. They hadn't used any other data points and really they should have been a lot more careful especially since my name, Paul Smith, is fairly common."

Equifax boast of unique techniques that reduce mistracing. Maybe they should just stick to checking the electoral roll, because if they had bothered to do that they'd have found that this Paul Smith has lived at the same address for 22 years in a completely different county to the other one. The council have now confirmed that Paul and Denise owe them nothing, yet the couple are still being chased.

Paul Smith: "The letters from the debt collection agencies haven't stopped and I have a trail on Equifax of debt collection agencies and that may very well impact on if I apply for a loan in future. With the amount of data that they actually hold they have a duty to be careful with it."

The credit reference agencies have files on almost every single adult in the UK. They are also bound by the Data Protection Act which stipulates that the information they hold must be accurate. They may be powerful, but the law applies to them as much as it does to the rest of us.

No visible transparent means of appeal

The lenders use the information provided by the credit reference agencies to undertake a process  known as "credit scoring" – essentially this is decide whether to accept or reject you.  Marc Gander, one of the founders of Consumer Action Group believes the power the agencies wield is enormous  and says “there is no visible, transparent means of appeal. They are unregulated and out of control."

He suggests their behaviour is "Teflon", because, if you have an issue with the data they are assigning to your credit file, they will refer you to the institution that provided them with the data in the first place. "They will argue that they are just the repository," Mr Gander argues “There is a lack of accountability."

Mistakes are rare

James Jones, head of consumer affairs at Experian defends the credit reference agencies by saying “While mistakes can and do happen, errors that could affect the outcome of a credit application (such as an erroneous default being listed) are very rare indeed".