Posts Tagged ‘credit report’
As every company uses a different credit scoring procedure, pinpointing how any given one will view you is impossible. Yet keeping an eye on your general credit healthiness is important.
You’ve a statutory right under the Consumer Credit Act 1974, to write and get your files, yet this is slow and costs £2 per agency (see the officially checking credit files note). Instead, there’s a loophole to instantly get more detailed info online for free.
How many and how often?
If possible, check all three agencies, there’s no harm, as while doing a check is recorded on your file it does NOT add a ‘search’ so has no impact and an error on any one can cause you a problem.It’s worth doing a check-up roughly every year to 18 months.
A trick to get every file online for free…
Credit ratings have become big business. In the old days the agencies made their money from flogging their data to lenders, but our desire for credit means they spotted a lucrative market to sell it back to us too. Luckily, this leaves open a nice loophole.
The top end service offered is ‘credit monitoring’, which costs around £70 a year (find out more about other credit services). To tempt you in, they offer free month long trials, which require you to set up a Direct Debit or regular credit card payment. Of course, the aim is you’ll not bother to cancel it when the month’s up so it still drips from your account.
The trick…
As part of the monitoring service you get to see your credit file online whenever you want, and laid out in a much easier to understand way than if you order the statutory file.
Therefore sign up, then view your file at no cost (some will be able to do this instantly, some may need to be posted a pass code), using the free trial. Simple!
Here is my personal favorite:
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Experian’s Credit Expert.
Details: Credit Expert offers a ‘free 30 day trial then £6.99 per month’ service which includes your credit report. Don’t confuse it with the Credit Score service which costs a one off £5.95.
Banks use lots of info to make their decision whether to lend to you, this includes information held by companies known as credit reference agencies. Yet the info they have is by no means comprehensive.
What banks know about you…
There are three prime sources of information used for scores.
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The application form.
Here lenders obtain the crucial details of your salary, family size, reason for the loan and whether you’re a home owner. Ensure you fill the forms in carefully; one slight slip, such as “£2,000” salary rather than “£20,000”, can immediately kibosh any application.
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Past dealings with the company.
Companies use any previous dealings with you to help assess your behaviour, though complicated data protection rules can limit which separate units of a company can communicate to each other.
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Credit reference agency files.
Experian, Equifax and Callcredit compile information, allowing them to send data on any UK individual to prospective lenders. All lenders use at least one agency when assessing your file. This data comes from three sources…
Electoral roll information. This is publicly available and contains address and who lives with whom details.
Court Records. County Court Judgements (CCJs) and Bankruptcies indicate if you have a history of debt problems.
Financial Data. Banks, building societies and other financial organisations compile details of all your payments and transactions. Around 350 million records a month are tracked including ‘black data’ which is details of any defaults, late payments or problems and ‘white data’ which incorporates how you generally operate the account.
‘Black data’ has always been shared by financial companies but now ‘white data’ is shared too, providing there’s customer consent. This means each lender now has access to all data about you from other organisations.
Now, the ‘white data’ that credit card companies share about you is increasing. From 1 December 2008, Barclaycard, Capital One, GE Money, HBOS and MBNA will share a lot more.
As well as your available credit, actual debts, and whether you’ve missed repayments, they’ll include the amount that you repay (i.e. if it’s the minimum, or repaying in full) and whether you’ve a promotional deal (plus if you use credit card cash advances, which you NEVER EVER should).
While overall the aim is to stop irresponsible lending, I suspect lenders are salivating that they’ll now have info to score out those customers who play the system, and constantly shift from 0% to 0% deals.
What banks don’t know about you…
There are many myths about what information is held on credit files. Don’t be fooled, they hold an enormous amount of financial data, but not everything.
The following things are NOT listed on your report:
- Fines. Any fines you have incurred, for example parking or driving fines. Even though they’re issued by the courts they aren’t ‘credit’ issues so they’re not listed.
- Savings Accounts. As savings are not a credit product they don’t appear on credit files.
- Medical History. Medical problems you may have had in the past aren’t listed.
- Criminal record. No criminal convictions are listed.
- Child Support Agency. Information from the Child Support Agency is excluded.
- Information on relatives. Provided you don’t have any joint financial products (see later) there is no information about members of your family who live, or have lived, with you or any other third parties.
- Student Loans. This information is not currently supplied to credit reference agencies, so whether you have a student loan or not, is not included in your file. The only exception is if you have a County Court Judgment against you for lack of payment, then that can be included.
- Any defaults or missed payments more than six years ago. The time span of credit files is usually six years, so if something happened more than six years ago it won’t be on your file.
Get a loan, mortgage, credit card, contract mobile phone or even monthly car insurance and lenders ‘score’ you to predict your likely behaviour. Scoring systems are never published and differ lender to lender, and product to product. So just because one company rejects you, it doesn’t automatically mean another will.
Credit scoring doesn’t just dictate what products you’ll receive, but also how good the ones you actually get are. For example, most loan rates are ‘typical’, meaning the APR depends on your credit score; with credit cards, if your score’s too low for the sexy deal you wanted, you might get a different product entirely.
There are two big myths to clear up though…
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Credit ‘ratings’ and ‘blacklists’ DON’T exist.
You DO NOT have a universal credit rating; nor is there a credit blacklist. It mightn’t feel like that though, as while each lender scores differently, the information they use is similar. A bad risk for one lender is often a bad risk for others too.
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Lenders aren’t obliged to dole out credit.
Applications are aggregated into millions, and banks prefer to deny a few good quality applicants rather than overspend on personalised vetting procedures or accepting large numbers of unprofitable customers.
Credit scoring’s about profit not risk…
This is so important, let me make it as clear as I can.
Even good risks can be rejected simply because they won’t make the bank money!
Banks pick customers for their own good, NOT yours, so the scoring process is about profit not risk. Of course risk plays a part, as those unlikely to repay are a threat to profits. Yet even the most solvent may be rejected if they’re unlikely to act in a way that’ll make profit for lenders.
The credit crunch has only magnified this. The sooner we understand banks are there to make money, not help us, the better we can play the system
It’s about sophisticated customer weeding
At the high end the whole process is about them picking their perfect customers, and their reasons for rejection can seem bizarre on the outside, but make perfect sense to them. For example…
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Credit card companies may reject you for always repaying cards in full.
While you feel like the perfect punter, for credit card companies you’re a nightmare. If they can spot this trend, you’re likely to be rejected. The most profitable credit card customers are those who are perpetually in debt, never defaulting, but always managing to meet the minimum repayment.
Pay off in full every month, don’t use cards enough, or always shift debt to 0% cards, and if they can spot you, they may reject you.
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Your score mightn’t be for the product you apply for.
Imagine this scenario, a banks wants new mortgage customers, yet that’s a costly sell. Instead it draws you in with a current account paying a high rate of interest on a small amount kept in it. Yet, when you apply, rather than scoring you as a bank account customer, it could actually be scoring to see if you’re likely to be a profitable mortgage borrower in the future.
