The role of credit records: A lender’s perspective

There is no question that credit records are a vital record of an individual’s credit commitments, both past and present. Credit records must be accurate and as up-to-date as possible. Their importance, as a reliable source of information, risks being undermined by current approaches to recording performance information. For example, the masking of forbearance information where a customer’s finances have been affected by Covid-19.

I have heard others argue that it is unfair for customers experiencing temporary difficulties due to Covid-19 to be penalised by the information being marked on their credit record. I struggle with this argument.

Many customers experience financial difficulty as a result of circumstances outside their control but do not benefit from that information being masked. The approach being taken currently raises a broad question of fairness – someone made redundant in January is treated differently to someone made redundant in April or May. It is hard to see the justification for this.

Surely the real question is how we create a credit market that is sophisticated enough to understand that some people are impacted temporarily and that others will be facing long-term financial difficulty.

The guidance from the FCA on masking of information requires lenders to tell customers that lenders may use information from other sources when making future lending decisions. In other words, masking information may not protect future access to credit, so the point of this approach is questionable.

Credit records are essential. Masking information, or removing historical information, reduces the value of a credit record as a tool to help assess whether a loan is affordable. Yes, lenders have other tools and sources of information to help evaluate whether a customer can afford to repay a loan but, given the regulator’s focus on affordability, we need to improve the accuracy of credit records. That way, we reduce the risks, and credit records continue to be of value to both lenders and customers.

Helen McCarthy, Head of Policy, CFA