Guest Comment: Why should we pay for OUR credit reports?

With free credit reports arriving in autumn, Tom Ilube (right), from credit reference agency Callcredit, explains the important of your credit file and whether other firms will embrace no-cost reports.

Imagine walking in to a clothes shop and handing over your best jacket to the bored teenager behind the counter. She wraps it up, puts it in a bag and hands it straight back to you with a bill for £60.

Sound a bit odd? Is there really an industry where you freely give a company something valuable and immediately buy it back from them? Well, welcome to the wacky world of credit reference agencies.

Before I go on, let me declare two interests. Firstly, I work for a credit reference agency (so I'm allowed to call us 'wacky', although my colleagues might hit me).

Secondly, I don't think the current approach of selling consumers their data should be the only way for people to get their hands on the basic credit report.

There must be alternatives. So let's go back to basics.

What is a credit report and why should you care about yours?

A credit report is like your financial passport. It's a record of all your loans, credit cards, store cards, mortgages, mobile phone contracts and any other credit agreement you have. It lists every payment you've made, late or on time, going back years.

When you apply to a bank for a loan, one of the first things it does is take a look at your credit report to help it decide whether to lend to you. As you can see, it's pretty important.

But who creates these credit reports? Well, there are three Credit Reference Agencies (CRAs) in the UK: Experian, Equifax and Callcredit (the one I work for). We all do more or less the same thing.

This information is so important that some people have argued there should be one centralised, government-run agency rather than three commercial companies. Fortunately, that will never happen, nor should it. Commercial CRAs invest huge sums in computers, security, analytics, customer service and processing millions of records.

They invest in constant innovation to provide better, cheaper products back to the financial services industry to help them manage risk. It works excellently.

But the consumer story is different. There is not a lot of innovation and consumers aren't bowled over with the service they get.

And the question arises, if all we are doing is showing you your information then, as the Council of Mortgage Lenders said in a 2009 Treasury Select Committee report, "it seems unfair consumers have to pay for access to their own data".

MoneySavingExpert.com and others have been campaigning for years to gain consumers free access to their credit reports.

Free reports

This led me to conclude it was time to inject some much needed innovation into the consumer side of the market, starting with a genuinely free for life credit report service. That is why we introduced Noddle [which fully launches in autumn].

I keep getting asked what our competitors will do (apart from striking me off their Christmas card list). Will they be forced to follow suit and will the consumer market for paid-for credit reports vanish?

My view is 'no' and 'no'. They might decide to offer a basic free report but they aren't forced to. Actually, I hope they do.

Only about a third of the population has looked at their credit report and if another 20 million people decide to view their report for free I wouldn't mind sharing the load.

Generally, when a free offer appears, it reshapes the market but doesn't destroy it.

Take music. You can listen to any song you like online for free but iTunes still makes huge amounts of money for Apple because it adds value in a way that consumers are happy to pay for. When a free offer hits a market, new business models appear and a wave of innovation follows.

CRAs are full of very smart, innovative people and I believe we are at the start of a wave of innovation that will benefit consumers for years. Noddle may have fired the starting gun, but will we win the race? Let the games begin.

Views expressed are not necessarily those of MoneySavingExpert.com.