3.
CREDIT CHECKING AND SCORING
Lenders want to make sure that you are
a good risk and do not have a history of bad debts and unpaid loans
behind you. To do this they will do two things. First they will
check your entry on credit registers. Credit reference agencies such
as Experian, Equifax and CallCredit PLC hold factual information
about you and this allows a lender to check your name & address
and your past credit history, including any County Court Judgements
or defaults recorded against you. This will provide your 'credit
refererence'.
The second thing that the lender will do will be to credit score
you. They do this by allocating points to a variety of questions
they have asked you. They then add up the total points score and you
either pass or fail depending on the result. For example, they are
likely to award you more points the longer you have been resident at
your current address or with your current employer. They will also
take into account things such as your occupation, your age, whether
you have a home telephone and how long you have been with your bank
etc. Lenders will never divulge how their credit scoring works for
fear of fraud and each lender will have their own system. The fact
that you have been turned down by one lender will not necessarily
mean that you will be declined by others.
A poor credit record won't necessarily prevent you from getting a
credit card, but you will probably have to pay a higher interest
rate. The self employed, or those - increasingly common these days -
on short-term contracts may not be such an attractive risk to
lenders.
People are refused credit for a number of different reasons and
there is no automatic 'right' to credit, although it is illegal to
refuse credit for reasons such as race, gender, religion, sexual
orientation or address.
A common reason however for being turned down for credit may be
because information held about you by a credit reference agency, or
information provided in your application form, suggests that you
will have problems repaying. Another very common reason for being
turned down is that you may not appear on the Electoral Roll with
the credit agencies at your quoted address. If you are having
difficulties in obtaining credit then it is always worth checking
that you actually appear on the voters roll at your current address.
If you don't, you'll be lucky to get credit anywhere. You can check
this by reference to Experian or Equifax.
If a lender turns you down for credit they must explain to you the
reason. However, they do not have to go into detail and simply have
to tell you whether it is due to their credit scoring or information
from the credit reference agencies.
How do I check
my credit file?
Most lenders go through three main
credit reference agencies for information on your financial past -
Equifax , Experian and CallCredit PLC . These three agencies,
although business rivals, work pretty much along the same
principles.
Each compiles credit histories from a number of different sources,
including the electoral roll, county court judgements and how
effectively past debts have been paid. Every time you open a new
form of credit it will leave an electronic foot print on your
record, which the agencies use to compile a credit 'scoring' system.
When you apply for a personal loan, the lender - be it a bank,
building society or whatever - will firstly run a credit check on
you to see what kind of 'score' you have.
If you are turned down for credit, this is not a decision made by
Experian, Equifax or CallCredit PLC, but by the lenders, based on
their own criteria.
If you want a copy of your own credit report, all three firms will
oblige. Experian for example has a low cost credit report
order-line: (0870 241 6212) or you can order your report online at www.experian.com.
You will need to have handy your name, date of birth, current
address, any previous addresses over the last six years handy, plus
a credit card or debit card in your own name. The fee for ordering a
credit report by phone is £2.50. Reports should be sent out within
7 days.
Equifax also offers an online service at www.equifax.com
for which it charges £11.50, or its postal service if preferred
costs £8.25 for a report.
If a lender refuses you credit, it must say why. Under the Data
Protection Act, if you are refused credit, and scoring was used to
help the lender decide, you can ask for a review of your
application.
for Ultimate Content on Money
& Finance
