In fact, the criteria vary depending on each company’s idea of the ‘perfect customer’, so being rejected by one doesn’t necessarily mean you’ll be rejected across the board. Gah.
How do credit scores work?
When you apply for credit, be it a loan, mortgage or mobile contract, your eligibility is largely determined by your credit score. The role of the three credit reference agencies, Experian, Equifax and Callcredit, is well known, but your application form and past dealings with the company also play a part.
Another factor is your financial behaviour. For example, paying off the full amount on your credit card every month is potentially as unattractive as missing payments altogether. There’s a sexy medium, somewhere between over-reliable and pending-financial-disaster; namely those people who regularly make the minimum payment, and happily pay interest month after month.
Then there are behind-the-scenes influences that are impossible for Joe Public to predict. For example, a bank might decide to focus on new mortgages; as such, your eligibility for an unrelated product might be swayed by the likelihood that you’ll become a profitable mortgage customer in future.
What’s included in my credit reference?
All lenders use at least one credit reference agency when scoring; the agency’s information comes from these five sources:
• the electoral roll – publicly available, providing address and who lives with whom details
• account data – details of payments and transactions on credit/store cards, mortgages, loans, bank accounts and mobile phone contracts. The amount of data being shared between companies is on the increase; some will include the amount you repay (e.g. minimum or full), missed payments, promotional deals and credit card cash advances.
• court records – including County Court Judgments and bankruptcy declarations
• search, address and linked data – a record of other lenders who’ve searched your file in the course of previous credit applications, people you have financial associations with, and addresses you’re linked to.
• fraud – if you’ve committed fraud, or if you’ve been the victim of identity theft, this is detailed in the CIFAS section (more on CIFAS below)
What’s not included in my credit reference?
There are a lot of myths about the criteria used for credit scoring. The banks don’t, in fact, have access to any of this stuff:
• declined applications – lenders can only see if you’ve applied for credit previously, not whether or not it was approved
• whether you’ve check your file – this does show up when you check your own file, but it’s not visible to lenders and so doesn’t affect your score
• parking or driving fines – although they’re issued by the courts, they aren’t credit-related issues
• criminal record – not included
• race, religion, colour – all sensitive/irrelevant personal details
• salary – it’s not on your credit file, but it’ll invariably be requested on your application form
• savings accounts – savings aren’t a credit product
• medical history – not listed
• relatives – only information on joint financial products is included (see below)
• Student Loans – modern-style loans paid through the tax system are exempt, however the SLC has started including old-school pre-1998 loans
How do I check my credit score?
You can request a £2 ‘statutory credit report’ from each of the three agencies (Equifax, Experian and Callcredit) online. The report includes your personal details, information on financial links to others, whether or not you’re on the electoral roll, any credit accounts you have, defaults or missed payments, and a note of other recent searches on your file.
Erroneous data can affect your score, so it’s a good idea to check your file semi-regularly, say once every 18 months.
How do I correct mistakes on my credit file?
The agency should be able to correct any mistakes, however it’s sometimes necessary to contact the company who initially logged the data directly. If they refuse to amend your file, you can leave a note in the comments section. Or, if you’re really not happy, you can contact the Information Commissioner’s Office.
What is Fraud Scoring?
Fraud scoring is now a major factor in applications for credit. There are two main agencies, and they work in very different ways.
National Hunter is used by all major banks and building societies, and checks a whopping 100,000 applications a day. It’s on the lookout for inconsistencies between new applications and those made previously. The system alone isn’t enough to determine rejection, as the lender is obliged to investigate any ‘red flags’. Still, it’s a good idea to be consistent with your applications; use the same job title and contact number, for example.
You should be informed if National Hunter has contributed to a rejected application. You can obtain a copy of the information they hold on you for £10, by making a Subject Access Request. Their website explains exactly what to send.
The CIFAS is a record of any known fraud, so there shouldn’t be any surprises on there. However, somewhat worryingly, any fraud committed at your address might appear, even if carried out by someone else.
The CIFAS website explains how to make a £10 Subject Access Request, should you wish to check your file.
How do I improve my credit score?
• get on the electoral roll – being absent from the roll will almost certainly affect your eligibility for credit. You don’t need to wait for the annual reminder to come through in the post; sign up here.
• space out your applications – lots of applications over a short period of time can harm your score
• keep up payments – make at least the minimum payment, on time, every time. If you find yourself in trouble, it’s best to contact the lender directly to agree a viable repayment scheme; much better than waiting for a County Court Judgment.
• financial linking – simply being married to someone with a poor credit history isn’t enough to lower your score, but it can have a negative impact if you’re financially linked. The two joint products that infer linking are mortgages and bank accounts. If you split from someone with a poor history, contact the credit agencies and request ‘disassociation’, that way their history won’t affect yours in future. That’s closure, baby.
• ‘quotation’ not ‘credit’ – if looking for a specific quote for a loan, ask the lender to do a ‘quotation search’ rather than a ‘credit search’. This means you don’t run the risk of adversely affecting your credit score.
• buy rather than rent – ok, maybe a bit of an extreme measure if you’re simply looking to improve your credit score, but evidence of stability is a big plus. Similarly, people who are employed rather than self-employed are more likely to be approved for borrowing.
• nip rejections in the bud – if you receive a surprise rejection, don’t shrug it off or wait to see what happens next time; check out your credit histories with the three agencies immediately.
• cancel unnecessary credit cards – access to too much credit, even if unused, is a bad thing
• pay off debts – it’s better to pay off outstanding debts with your savings, rather than hold on to both the cash and the debt. This is particularly true when looking for a new mortgage.