By Jack Peat, Editor of The London Economic
Tracking the rise of Experian consumer services
Credit reports are one of the most business-centric products ever to be consumerised.
The reports, or credit ‘scores’ as they are now known, are used by creditors as a way of making decisions about your creditworthiness. Whether buying a car, house, computer or applying for a student loan, they play an integral role in the economy.
Perhaps because of the frenzied marketing associated with credit rating firms, the concept has slipped my attention for many years. It wasn’t until I saw a banner ad on the tube home, devoid of a newspaper or book, that it struck me how bizarre the notion is.
A three-digit number can be the difference between a mortgage bill and a rental cheque, a pushbike and a car or a start-up loan and the dole queue, but it is of little practical use outside high street banks and car dealerships. It is a business tool with purely corporate applications, which is why Experian’s move to consumerise the market is both and wonderfully lucrative and terribly deceptive.
Fair, Isaac and Company came up with a proprietary scoring formula in the 1950s, but at the time felt the score would only confuse consumers since there was nothing to tell them what it meant or what lenders were looking for. This changed in 2001 due to pressure from US Congress and industry and consumer groups which opened the market – for a fee – to consumers.
There are certainly benefits to prudent bookkeeping from a personal perspective, none of which are afforded with a credit score on your side. The US ruling opened an entirely new market to credit scoring agencies and it wasn’t long before consumers in the UK were being duped by services that sell problems without solutions.
Experian, a leading credit ratings agency, was one of the first firms to consumerise credit ratings. A quick read of its ‘history’ page unearths how it “broadening its product range,” by “applying its information and analytical skills to new industry sectors, beyond financial services”.
“The acquisition in 2002 of ConsumerInfo.com provided the foundation for Experian’s Interactive business. It established Experian as the market leader in the supply of credit reports to consumers, enabling them to monitor their credit status and reduce the risk of identity theft.”
Of course, Experian isn’t the only firm to offer FICO scores. Equifax, TransUnion, myfico.com, and several other internet-based firms have moved into the market, albeit not as extravagantly as the headline firm. But how much do we need them, and what can we find out on our own?
What can you get on your own?
If a numerical value depicting your creditworthiness is important to you, there are free means and indicators available which can help you ascertain what it is. It’s not an easy calculation, but below are the variables used on a credit score, which can be generated here.
- How many total accounts do you have?
- How many of these accounts are late, and by how long?
- How many credit cards/ loans have you applied for in last two years?
- How many open loans/ credit cards do you have?
- What is the value/ limit of these loans/ cards?
- What is the number of open credit cards that are “maxed out”?
- Any judgments, tax lien, or bankruptcies?
If you think you’re being targeted by identity fraud, the number is 030 123 2040, not the Experian hotline. There is an Action Fraud website which can be found here, with plenty of advice and recommendations. To better protect yourself from identity fraud, here’s some suggestions:
- Don’t throw out anything with your name, address or financial details without shredding it first.
- If you receive an unsolicited email or phone call from what appears to be your bank or building society asking for your security details, never reveal your full password, login details or account numbers. A bank will never ask for your PIN or for a whole security number or password.
- Check your statements carefully and report anything suspicious to the bank or financial service provider concerned.
- Don’t leave things like bills lying around for others to look at.
- If you’re expecting a bank or credit card statement and it doesn’t arrive, tell your bank or credit card company.
- If you move house, ask Royal Mail to redirect your post for at least a year.
- Regularly check your balance online
Improving credit ratings blind
Credit ratings don’t make good credit scores; a good credit history does. If you have a bad credit rating it will be for one of the following reasons, and it can be fixed be rendering one of the following components:
- Pay your bills on time.
- Keep credit-card balances low.
- Don’t close your oldest accounts.
- Pay more than the minimum.
- If you finance your vehicle purchases, handle those loans properly to ensure a high Industry Option FICO score.
- Pay down or pay off maxed-out credit cards.
Consumerising credit ratings
To take something that is quite clearly a business tool and market it as something consumers need is a prudent move on behalf of companies such as Experian, but in my eyes, it is paramount to fraud. Like the PPI scandal which duped consumers into being overly cautious in a market they don’t truly understand, credit ratings offer more problems than they do solutions. More widespread knowledge of prudent credit usage is a better antidote over a colorful barometer shipped straight from a bankers’ desk.