Cast-iron credit rating? Think again…

You may be diligent with bills and mortgage payments, but credit report errors are on the rise, so watch out.

Have you never missed a mortgage payment? Do you dutifully pay off your credit card bill each month? Take pride in your squeaky-clean credit rating?

You might be in for a nasty surprise. A simple error on your credit report could leave a black mark on your finances that will thwart your chances of obtaining a mortgage, a credit card or, frankly, anything else.

As more and more of our personal information — from mobile phone statements to utility bills — is held on credit reports, the chance of a company making an error increases.

I recently learnt this the hard way when my application for a credit card was rejected by Sainsbury’s Bank.

Thinking this was a blip, I tried another lender. Not only was I rejected again, but I received an email from the provider, Virgin Money, advising me to check my credit score urgently.

I have always set up direct debits to pay my bills, I have never missed a mortgage payment and I have been on the electoral roll for years — all the tips we give readers to keep their credit rating in good shape. I was baffled.

I signed up for a month-long free trial with Equifax, one of the three main credit reference agencies. (The other two are Experian and Callcredit; the latter also owns Noddle, a newcomer that offers free reports.) My Equifax report showed each source of credit, with a box for each month, coloured green if the record is good and red if it’s bad.

To my horror, I saw four bright red boxes next to an account with O2, for an old mobile phone contract I had shut down in February.

Generally, my credit record was a sea of green. But there was one outstanding debt of £16.89 to O2 — a debt I knew nothing about.

This small sum had destroyed my credit score, which was now labelled “poor”. I scored 356 — anything above 420 is considered “good” — and was warned: “Most credit granters would consider your score risky. You may find that you must pay higher rates of interest or provide security in order to obtain credit.”

I was shocked, not only by the erroneous entry, but that a £16 debt could affect my rating so much. More importantly, I knew it would seriously impede my attempt to remortgage when my home loan deal expires next year.

Am I only one?
I am not alone. Mistakes on credit records are surprisingly common and complaints about them to the Financial Ombudsman Service have been rising. In 2015-16, it received 351 complaints about credit reference agencies, an 86% increase from the previous year.

Most of the complaints that it receives involve incorrect information held on file by agencies; the time taken to update or remove incorrect information; disputes over whether a missed payment is the fault of the business or the consumer; and fees charged for access to credit files.

I was shocked that A £16 debt I knew nothing about could destroy my rating

Much of the information that many of us regard as private is now appearing on credit reports — so even a mistake on a utilities bill can affect your chances of being approved for a mortgage.

The ombudsman said: “The most common type of complaint we looked at last year relating to credit files is that there was an incorrect recording on someone’s file.”

This included cases where the wrong person’s details or debt had been recorded on a file — for example, where family members’ details had been mixed up — as well as complaints that bankruptcy orders or county court judgments had been registered in error.

The ombudsman added: “Credit reports mostly operate in the background, away from people’s day-to-day attention. So it’s understandable that many consumers do not know how their credit report works or what is kept on it, and people often do not realise there is a problem until it is too late.

“It is only when trying to apply for some form of credit that they discover their credit rating is a stumbling block.”

What happened with O2?
In February I called O2 to close my mobile phone account, which was costing me about £30 a month. I paid the outstanding balance, as well as a £60 settlement fee to terminate the account, and was given two reference numbers for the closure. I was also told to ignore any final bill that I was sent.

But, as I later discovered, the account was not closed properly and a bill for £16.89 was issued the next day.

Five months later, after I discovered the problem with my credit rating, I spoke to the O2 customer services team. The company apologised for mistakes made in closing the account and told me to email it the details.

In the meantime, the “debt” of £16.89 had grown to £30.03. Concerned about damaging my rating further, I paid it off and waited for the company’s response.

Last week, following my email, O2 investigated and promptly corrected the mistake, removing the red entries from my credit report. It also refunded the £30.03.

In a letter describing its findings, the mobile phone company said it was “sorry we didn’t close down your account as promised, which has led us to incorrectly register four late payment marks on your credit file”.

Credit reports growing in influence
It used to be that paying your mortgage in a timely fashion was enough to give you a good credit rating. Now a blip on a minor bill can tarnish your record.

Over the past few years, credit rating agencies have been collecting more and more information about us. Forgetting to pay your water bill could now affect your rating, for example.

At the same time, banks and other financial firms are putting greater emphasis on the need for a good credit score.

As the ombudsman has shown, errors are a growing problem. James Daley of the consumer group Fairer Finance said: “Incorrect information on your file can be crippling for consumers, and there need to be easier ways to undo the snowball of ill effects that follow once missed payments have incorrectly been logged.

“Unfortunately, the government still allows the agencies to charge people £2 to access their information — and most also encourage customers to take out expensive premium packages.

“It seems a very long time since the government reviewed the deal that it has with the three main agencies.

“The built-in lack of competition in the sector has meant that it is often lazy and has no incentive to make itself more customer-friendly. We think this sector is ready for a full review.”

Beware of credit ‘footprints’
Mistakes on your credit score are not the only thing to watch out for. Making multiple applications for any form of borrowing will leave a “footprint” for 12 months on your credit report.

Mark Harris of the mortgage broker SPF Private Clients said: “Every time you apply for a credit facility, it is noted on your credit report and this will have an impact on your credit score. If multiple applications are made within a short period, it will have a negative effect on your score and you become less attractive as a credit client.

“Furthermore, lenders could perceive this action as a borrower desperate for credit and that will set off alarm bells, making it incredibly difficult to get funding at all.”

Experian advises holding off applying for any kind of credit for six months before you try to take out a mortgage.

Register to vote — and five more steps to boost your score

• Check your credit score and correct any mistakes. While waiting for the correction to be made, ask the agency to put a mark on your report showing that a specific debt is disputed

• If you cannot get an entry changed, you can write a “notice of correction” to be attached to your record. This means a credit application, which would typically be processed by a computer, has to be referred to a person in the lender’s underwriting team to be reviewed

• Register to vote – your electoral roll entry is used to confirm your identity and address. If you are not registered, your credit rating can be affected

• It might sound odd, but not having a credit card will make it harder to develop a credit footprint. Even if you’re averse to the notion of credit card debt, it is worth taking one out and not using it, especially if you plan to apply for a mortgage in the near future

• Do not borrow up to your credit card limit. Matt Sanders of the comparison site Go Compare said: “Try not to exceed 30% of your total available limit every month”

• When deciding on your eligibility for a loan or credit card, lenders look at how much credit is accessible to you, not how much you are actually using. So make sure you close any old, unused accounts

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Meredith Weisser

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