Graham Hill’s Advice On Preparing For Credit Part 2

Sunday, 14. September 2014

A few years ago ‘Credit Repair’ services had a neat trick set out to defraud lenders. Having found a pile of adverse information on your credit file, that reduced your credit score and would therefore result in an instant decline from all prime lenders, they would set out to ‘repair’ your abysmal file. The process was simple, they would write to the credit reference agencies and dispute every piece of adverse on the file, whether it was a CCJ, default, arrears etc.
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As a result, as the information was being disputed, the credit reference agency would remove the adverse information from your file until the company who had placed the information on your file could respond with proof that what they were saying was correct. They Credit Reference Agency (CRA) would also have the Register of Judgements checked to see if the CCJ’s on the client’s file were genuine.
At the time all of this took over 2 weeks. So in the meantime the client’s credit score would shoot through the roof and he would go on a spending spree or even just apply for a car that he desperately needed but for which he had been declined for credit. That can no longer be done. These days if you are disputing anything that is recorded on your file you will need to contact the person filing the information and they must respond within a short space of time with proof that the information is correct.
If you feel the information is still inaccurate you can take it up with the Information Commissioner’s Office (ICO) and they act as arbitrator. CCJ’s are a matter of public record so it is either there or not. But this leads me to another strong piece of advice regarding CCJ’s – don’t be belligerent. If you have been to court and the judge has found against you don’t think – ‘Damn, he can wait for the money’ then wait till the bailiff is about to call before you pay it off or pay an agreed amount monthly when in fact you could afford to pay it immediately.
Provided you pay the judgement off within 1 month the judgement is removed from the register and should not show on your credit file. However, there are certain things you must do to protect your credit. If you pay the money into the court make sure you receive a satisfaction certificate then check your file to make sure that there is no mention of the CCJ. If the CCJ is recorded on your file apply to all CRA’s to have it removed with a copy of the satisfaction certificate.
If you pay the money direct to the person you owe, make sure that you receive a receipt, advise the court by sending them a copy of the receipt against which they should issue a satisfaction certificate and amend the register. Make sure that if this happens within the month the CCJ is removed from the register and there should be no mention on your credit file, if payment is made after the month is out you should send a receipt, received from the company you paid, to the court who should then issue a satisfaction certificate and note it on the public files.
This should trigger a note appearing on your credit file to say that the debt is satisfied, if it doesn’t show on your credit file, send a copy of the satisfaction certificate, issued by the court, to each of the CRA’s and they will check the register and amend your credit file. The same applies if you pay back the debt monthly, you need to make sure that the CCJ is marked as satisfied once all the money has been paid. The bad news is that the CCJ, even when satisfied, stays on your file for 6 years after the debt has been fully paid.
So even though the CCJ is satisfied, the fact is that you received one in the first place. So here’s the thing, because of the changes in consumer regulations it is important to keep your credit file squeeky clean. So do everything to get this sorted before it gets to court and avoid a CCJ. If you can’t pay a debt speak to the person you owe money to and come to an arrangement, it is easier than dealing with debt collectors. If you can’t come to an arrangement with the person you owe the money to and are contacted by debt collectors, again come to an arrangement rather than risk a CCJ by going to court, chances are you will still end up paying the same per month but by paying the person you owe the money to direct your credit score will not be affected by a CCJ.
Make sure that if a CCJ is issued it shows the correct amount and if satisfied you may still have to ask to have it removed from your file after 6 years of being on there. Another great piece of advice is always put up a Notice of Correction against a CCJ. Explain if it was a trade dispute or any special circumstances that may have caused it to be issued. As I mentioned in part 1 a CCJ affects your credit score and can result in an auto decline when you apply for credit. A notice of correction forces an underwriter to look at the file and see what you have said – it could help your case if you have a valid reason for the CCJ, if it was a trade debt not related to credit or if you are applying to have it set aside.
CCJ’s are an important item on your credit report and need to be managed. There are 1,910 consumer county court judgements issued every day so it’s not a small problem. Moving on, let’s talk about your bank statements before moving to the application in part 3. You will probably only be asked for last 3 months bank statements, the problem is they can be manipulated so you may be asked for a P60 which shows your declared income to the revenue. But that is rare so you need to make sure that your bank statements are as good as they can be.
If you have returned (bounced) items showing on the statement, that is a no no, your application will probably be declined. If you have an overdraft and you exceed it or if you don’t have an overdraft agreed and you go into unauthorised overdraft, don’t apply for finance until the last 3 months are clear. This isn’t deception it’s common sense. Having an overdraft and using it is not a bad thing, it shows that the people who know your account better than any, your bank, has allowed you an overdraft and effectively provided credit.
Years ago a credit repair company would suggest that for a 3 month period you should borrow money from a friend or relation and either drip feed it into your bank account to give the impression of higher earnings and a healthier bank balance, paying them back once your credit was approved. Or pay in a lump sum, borrowed from a friend or relation, prior to running off the 3 months statements (that won’t show as a loan on your credit file), which will show a healthy balance rather than an overdraft. It is a weakness in the way that we underwrite for credit.
In order to prepare make sure that you have last 3 months bank statements available. Most lenders will now accept statements produced on your computer if you use Internet Banking but you must make sure that the printable copies show your account details as well as your name and current address. Also make sure that if you scan and email copies you don’t miss any pages, they will check the numbers and request any missing pages or they may just assume that you have something adverse on the missing page and decline you.
You will also need proofs of address so make sure that you have at least two bills dated within the last 3 months. Scratching around at the last minute after the finance has been agreed for proofs of address may not only hold up delivery but also prevent you from receiving the finance. If you are totally paperless it would be wise to request hard copies of some recent bills if you cannot print them off yourself or you have thrown away bills after paying them.
Most lenders WON’T accept mobile phone bills, even though many consumers no longer have a traditional landline. Gas/Electricity/Water/Sewage/Landline Telephones are usually all OK but must be dated within 3 months. Some may accept a bank statement and a credit card statement, council tax bill and mortgage statement but only if dated within 3 months. You will definitely be asked so make sure that you are prepared. Your driving licence will also be asked for.
The most important thing to do is ensure that the address shown on the licence agrees with the latest address on your finance application. If it doesn’t it will cause many problems and not least of which it is illegal. The maximum fine for not having a current address on your driving licence increased this year from £1,000 to £4,000 with three points added to your penalty points. So before making your application make sure that the licence shows your current address and you have the paper part if you have a new style licence.
If you have lost your licence the lender may accept your passport as proof of ID. Again make sure that it isn’t out of date or they won’t accept it. Oh and one funder insists on having your original driving licence sent to them so make sure that your application doesn’t coincide with a holiday or trip during which you may require your licence to hire a car or as proof of ID. By Graham Hill
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Graham Hill’s Advice On Preparing For Credit Pt1

Friday, 29. August 2014

I recently answered a frequent question in one of my standard mailouts which received a massive response so I am reprinting it on my blog for you to come back to if needed. Part 2 will be a further blog when sent out to my database, here is part 1:

Q. I have never been declined for finance in the past but just been declined this time around, could I have prepared better?
Answer Part 1:
If you didn’t carry out a credit search on yourself then that was the first thing you did wrong. There are 3 credit reference agencies used by lenders,Experian, Equifax and Callcredit. You can access your credit report for free to see what your credit score is and what information is held on you. Experian and Equifax offer a 30 day free trial following which they charge your credit card monthly but for this you receive alerts whenever anyone searches your file or when you or anyone else tries to take out credit in your name.

Thinking of a change but unsure as to the best way to finance your car? Then you need a copy of my car finance book, Car Finance – A Simple Guide by Graham Hill. Click on the link below to buy the best car finance book on the market, available as a Kindle Book and Paper Back.

Callcredit, the new kid on the block, offers Noodle which gives you free credit reports for life. If you would like daily updates, fraud alerts etc. you can sign up for Callcredit Credit Compass and pay a monthly fee as you do with Experian and Equifax.
There is a limit as to the amount of information stored on you and sadly there is no Government regulation that forces every credit reference agency to store the same information so the information could vary between each report. In my opinion this makes a nonsense of our credit system and means of assessing affordability.
You tend to only find out which CRA the lender uses when you have been declined – by then it’s too late as it is much more difficult to have a decline overturned than to get it right in the first place. One area which causes more delays and declines than others is Voters Roll information. You may decide never to vote, that is your prerogative but you should still make sure that you are on the voter’s roll as this is the link to your address and the credit information stored against you.
If you do not appear on the voters’ roll you stand a good chance of being declined. If you find you are not on it you can enter your details very quickly online these days. Of course not being on the voters’ roll could mean that you are avoiding council tax which would be a good enough reason for a lender to decide you are not worthy to lend to. Oh and make sure that your date of birth is correct on the credit file, this is key to carrying out a search on you.
Having a linked financial relationship to a third party with poor credit could be enough for you to be declined for credit as both of you are assessed and if the other party fails you can be brought down and declined. Even if you have no joint financial arrangements but applied jointly for a credit card or even HP on a fridge that was not eventually taken out the link remains.
You need to correct this by writing to each of the CRA’s and explain you have no financial involvement with the 3rd party. However, this is also weak as you could still be living together and sharing bills but as if by magic your credit has been repaired. Information showing credit agreements fully paid up help you out but keep a credit card, even with no balance on it, after transferring a balance to another card provider will definitely work against you.
Let’s say you have £5,000 on card A which you transfer to card B. If you don’t have card A removed from your file by cancelling the card with the provider you will be seen to have already spent the £5,000 available on the old card when assessing your current commitments even though you have spent non of it. Either remove the card completely or get the limit reduced to its minimum.
County Court Judgements (CCJ’s) from a lender’s point of view are an instant decline, often as the application goes through the auto – underwrite.
The fact is that when information gets passed to the various credit reference agencies mistakes can be made so first of all check to see if there are any CCJ’s on your file that shouldn’t be there. The fact is that CCJ’s need not be the result of an unpaid credit transaction and if that is the case should it even appear on your ‘credit’ file in the first place? Another failing of our hit and miss credit assessment system. A client came to me having been declined for credit on a car.
We checked his credit file and we found a CCJ which the client knew about but didn’t think would affect his credit, which of course it did. He had bought a bespoke suite from a furniture shop but when it arrived it was nothing like the design he ordered. He spends many months a year working abroad so after lodging his complaint with the shop he left for a 2 month trade visit to Africa.
When he returned the shop had sued him for the money unpaid and as a result of non appearance a CCJ was issued which he was seeking to have reversed. I drafted a note to be appended to the CCJ on each credit file explaining the above, this is called a notice of correction (maximum 200 words) and we had the finance cleared. I just mentioned a Notice of Correction, this is very powerful if you find a mistake or you want to make a lender aware of any special circumstances surrounding any issues on the file.
For example a redundancy or illness may have caused some arrears or a default but has since been resolved and all credit is now running smoothly. If you put this into a Notice of Correction it does two things it ensures that anyone checking your file sees the circumstances and it ensures that you application misses auto underwrite and forces an underwriter to review your case, this is the law. If you don’t do this it will cause your credit score to drop below the threshold  that triggers an auto decline and you are left fighting to get the decision overturned.
I’m sure I don’t need to explain the importance of keeping up payments. In the past missing the odd credit card payment and paying the minimum amount was not such an issue but these are now being factored into the credit score – I’m told. So best to pay your credit cards by direct debit and make sure you make the minimum payment and don’t exceed your limit.
The CRA may also hold details of your bank including your current balance and any arranged overdraft facility along with loans and all other credit contracts. There are two things that the CRA’s lie about, firstly they say they only store factual information they don’t provide an opinion regarding the individual’s credit worthiness.
This is stated by all three CRA’s but it simply isn’t true! Each has their own set of calculations that results in a credit score. If this isn’t an opinion I don’t know what is? They even have a gauge that goes from poor to excellent. Will lenders fund you if you are considered poor? And the auto underwriting systems use this information as part of their auto accept or auto decline calculations.
So they are liars, they are virtually underwriting for the lenders. They also explain that they don’t have a black list, they do. By considering you poor or providing a low score you are on a sort of black list. You will also be actually black listed if there is a concern by a lender that you have committed fraud and you have a CIFAS alert on your credit file.
If you see this you need to act immediately as you won’t get credit if  a lender sees it. If you are a tenant will you be refused credit as you don’t own your property? No. Fewer people are buying these days and whilst, in the past, a lender would assume equity in your property if you defaulted on a loan judges these days are very reluctant to throw you and your family out of your home because you have defaulted on a loan.
They could do but it is less likely, so a lender is no more likely to collect a bad debt if you are a home owner than a tenant although they could place a charging order on the property if you default which means they can recover the debt if you ever sell your house. A charging order showing on your credit file won’t help you.
The strange thing is that landlords are not required to lodge their tenancy agreement with the credit reference agencies or report any missed or defaulted payments – which is of course wrong. For the record missed mortgage payments can lose you a lot of points.
If you don’t think that the above won’t apply if you are putting the car through your company, think again.
The lender needs to see how it’s main director(s) run his or her private affairs and of course if you are a current or recently discharged bankrupt or in an IVA. These of course could cause applications to fail. When making an application in the name of a company, you will normally be asked for maybe one or possibly two partners/directors.
It makes sense to see which director is the strongest by way of credit and add his or her name to the application. I have known directors with poor credit resign from the company until after the credit has been approved then join again. Not that I suggest anyone does it but I know it goes on and the lenders seem to do nothing to prevent it. By Graham Hill

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FCA Approaching Debt Problems In The Wrong Way

Monday, 9. June 2014

I know I keep whinging on about the FCA and their new rules but I am genuinely worried about the affect it is having on the ability of lenders and intermediaries to do business and for genuine borrowers to be able to take out finance. As a result I’ve become pre-occupied with the subject of affordability and how lenders can analyse the application from a client to assess whether the customer should receive the finance or not.

Thinking of a change but unsure as to the best way to finance your car? Then you need a copy of my car finance book, Car Finance – A Simple Guide by Graham Hill. Click on the link below to buy the best car finance book on the market, available as a Kindle Book and Paper Back.

The problem that lenders have faced for years is – will the applicant make his repayments? The only way they have been able to assess this is by combining historical data with statistics to arrive at a pretty Heath Robinson credit score.

From the information obtained from the credit reference agencies combined with the lenders own score card requirements a further analysis takes place using statistics to arrive at an acceptance, decline or an acceptance subject to certain conditions or additional information.

For example if you are married with children in a house that you ‘own’ you are less of a risk and more likely to pay than a single person with no dependents living in rented accommodation. The fact that you own your house and have made your mortgage payments on time contributes towards your credit score but the fact that you are married with dependents is part of the lender’s score card. Now here is the confusion created by simply looking at your credit score.

Your credit reference agency score could be excellent because you have a credit card with a £2,000 limit on it that is paid on the button each month with a small balance on the card that every 3 months is fully paid off. All other payments are made on time including your mortgage which shows you own your property and you have no adverse whatsoever on the file.

But just because you have an excellent credit score doesn’t mean that you can afford to take out a finance agreement that will cost you £500 per month. You may show that historically you have met all your commitments and therefore represent a good credit risk but where is affordability in all this?

The lender’s own score card may show that having responsibilities, like a mortgage and children, living in a certain area in a certain job may statistically make you a good risk, there is nothing to prove it and I believe that it is this shortfall that has caused the Government via the FCA to force the lenders to test the ability to pay rather than the intention to pay.

But my question is this – if, through some twist of fate or luck the system worked – why try to fix it to the detriment of all concerned? We know that short term or pay day lending is a totally different type of product and given the distress that the collection and ability to rollover the debt, thereby substantially increasing the amount owed, causes consumers, it makes sense that lenders apply a more stringent set of affordability tests.

But that doesn’t apply to normal lending where the lenders have many years of experience under their belt and know who represents a good risk and who represents a bad risk. It’s a little like Ford identifying a problem with Focuses manufactured between 2010 and 2012 but recalling all Focuses ever made just to be on the safe side. It’s ridiculous.

In my simple opinion the ‘problem’ is being approached from the wrong end as I believe that generally most people have the intention to pay and have already personally checked the affordability of the finance out of their income. If someone dies in a car accident the Government doesn’t stop everyone from driving.

Lessons need to be learned, addressed and repaired to prevent it from happening again. The same applies to lending. But it already does. The lenders would soon go out of business if the number of defaults and arrears kept increasing so they are obviously refining their credit underwriting but even the lenders don’t have access to a crystal ball to see into the future.

The Government needs to spend money on helping those with debt problems, assist them in managing the debt and help them to recover with least pain to them and their family. When it takes two and a half years for the Financial Ombudsman to review a complaint it is clearly here that effort and money needs to be funnelled not into affordability checks that the lenders do quite adequately.

I ask the question again, what happens to those that wish to borrow money for a car in order to get to work or get their kids to school when the lender, after applying the new tests says no? The whole FCA concept has been ill conceived and badly thought through and for once it has nothing to do with the EU. By Graham Hill

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Financial Associations Causing Finance Applications To Be Declined

Friday, 14. February 2014

Most people are aware that in order to be approved for finance you need to have a reasonably good credit score. You maintain a good credit score, as you know, by making credit payments on time (pay by direct debit wherever possible), not gaining CCJ’s, defaulting or going into arrears and not applying for credit to too many companies at the same time.

Thinking of a change but unsure as to the best way to finance your car? Then you need a copy of my car finance book, Car Finance – A Simple Guide by Graham Hill. Click on the link below to buy the best car finance book on the market, available as a Kindle Book and Paper Back.

Closing down old credit cards can also help. But I have had a few ‘declines’ just recently because of financial associations that, in a few cases, were no longer in existance. When you apply for credit you can only have your personal details searched so if you have a partner who has very poor credit or could even be bankrupt, they cannot be checked out unless you give permission or you have a financial association.

If you are shown to have a financial association with anyone the chances are that their credit status will also be taken into account. So if you are applying for finance and you and your partner have a joint mortgage or a joint credit card there is a financial association. One client had a girlfriend and they jointly applied for a credit card and were approved at the time.

They didn’t take out the card and split up shortly afterwards but one of them ran into some severe financial difficulties. As the financial association was still showing on the credit reference agency file the unknowing boyfriend was declined for car finance because of the difficulties experienced by the ex girlfriend.

So check your credit reference files and if you are showing any financial associations with any ex’s make sure you write to the credit reference agencies (all 3) and tell them that you no longer have any financial association with your ex, and to remove the link. By Graham Hill

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