Credit agencies are being investigated – and we have to pay attention

Credit ratings aren’t high on most people’s lists of sexy subjects, and they never will be. But we really ought to pay more attention to them.

The Financial Conduct Authority has just announced plans for an investigation into the market and, as ever with the financial watchdog, the language used would induce somnolence in even the weekend’s electrified Glastonbury crowds.

Most people could be forgiven for responding to Christopher Woolard, director of strategy and competition, who said the FCA has “identified concerns about the coverage and quality of credit information”, with a big yawn.

But if you think through what he’s saying and what a credit agency is and does, it ought to cause something more like a shiver starting at the top of the spine.

Each of the profit-making agencies – the main players are Experian, Equifax and TransUnion – tracks and scrutinises our every financial move. Using data from a variety of sources, including lenders, they build up a frighteningly detailed picture of our financial lives, one that can have far-reaching implications for our lives.

These pictures are carefully considered by lenders when deciding whether to give us credit and what sort of terms they’ll be willing to advance it to us on.

Credit scores are not the be all and end all. Lenders always make the final decisions and they all have their own criteria.

But the best deals inevitably go to the people with the best scores.

There aren’t many people who check them regularly, either, so problems are usually only identified when people are unexpectedly rejected for loans or other products. Those problems can, however, bite very hard.

Which? highlighted a number of disturbing examples when it looked into the issue last year. Its investigation is worth your time.

The FCA plans to look at the quality of the data being collected, the structure of the market and whether competition is working effectively.

However, what’s really important to consumers is that the participants get things right, and that the data they have is kept sufficiently secure (there was a nasty breach at Equifax a few years ago).

If we're going to have to put up with these organisations prying into every aspect of our financial lives, and making money through doing so, then that’s absolutely vital.

The decisions being made based on their research can have profound effects on us; on whether we can obtain mortgages to buy homes or not, for example.

It’s also true that lenders sometimes have to say no for our own good. If they get bad data and approve loans that we can’t afford, the consequences can be very nasty indeed.

So this study matters more than you might think, and the FCA is right to embark upon it. Its conclusions will merit careful attention.