The Truth About Credit Searches

Friday, 17. February 2017

Hi, Graham Hill here, thank you so much for visiting my blog, I hope you learn a lot and as a result end up driving a great car. In order to do so you can get all the information you need by buying my book, An Insider Guide To Car Finance or use me to finance your next car. Happy driving.

After a spate of adverts on the TV in which various lenders suggest that they can carry out a search to see if you are eligible for a loan, without leaving what is known as a ‘footprint’ on your credit file, many questions have been asked by customers and those on my blog regarding theses searches and their own credit files. In general they want to know how this can be done, are our searches recorded and what is the purpose of having searches registered on your credit file if some lenders are apparently ignoring the rules?

 

OK let me explain. First of all the rules are very clear, if you make an application to a lender for credit, which will cause a lender to access the information held on your credit file, they will register the search with the agency. More on this later. However, the rate you are charged for finance is often based on your credit status so to help the industry and avoid you suffering as a result of ‘shopping around’ a new search was introduced known as a ‘quotation search’.

 

This is different to a credit application search, known simply as a Credit Search. All Credit Searches are available to anyone who has access to your file after you have given them permission. But only you can see the ‘quotation searches’, none of these searches are available to lenders or anyone else accessing your credit information such as potential employers, association membership applications etc. Each of the three UK credit reference agencies, Equifax, Experian and Call Credit will list all ‘credit searches’ on your credit file once you have made an application for credit.

 

However, this encouragement to ‘shop around’ is promoted in the knowledge that whilst attempting to get to the best rate through lenders or brokers, your credit score won’t be penalised. That seems reasonable. However, lenders and credit card companies are using this loophole to drum up business. Now don’t misunderstand me, I’m not actually opposed to some form of pre qualification as it can save a lot of pain. If you are pre-qualified on the finance you will know, before you get excited over the new car you’ve chosen, if you will be offered the finance to acquire the car and the car salesman won’t waste time showing you cars that you can’t finance.

 

But it’s the abuse of the system that I, and many others, object to. There are some lenders and search agents that will offer to carry out a free credit search for you to see how your credit stacks up and your likelihood of receiving the loan you are thinking of applying for. But having carried out the search you are then inundated with offers of  ‘Pre-approved’ loans and credit cards. Not, in my opinion, in the spirit of the FCA regulations to treat customers fairly etc.

 

Anyway, let’s get back to the recorded searches and their affect on your credit. Different lenders have different attitudes towards the searches. If you have a number of credit searches on your file within a very short period of time, i.e. several over a few days they will approach your application with caution as it could be that you are applying for credit to many funders at the same time that could take you out of your affordability range.

 

Of course several searches could be the result of several applications being made around the same time. As the approval doesn’t get registered on your file, only the loan when you draw down the amount borrowed or, in the case of HP, when you take delivery of the car, the only way that lenders are aware of each other is via the searches. So whilst imperfect they can act as a warning.

 

For example, let’s say you have had agreed 5 different loans from different lenders, you could arrange draw down on the same day and only after that would each lender be aware of the other, so that’s why searches are important. To avoid the lender believing that you could be doing this make sure that if you are ‘playing the field’, when you ask for a quote the lender is only carrying out a quotation search. You should also be aware that when searches are registered they are only registered with the agency that the lender uses. In other words there is no sharing of information between credit reference agencies, so if the lender searches Experian the search will only be registered with them, not with Equifax or Call Credit.

 

Of course some of the larger lenders will search all three platforms, especially if the loan amount is substantial. When checking your own files, there are new agencies such as CheckMyFile who purport to check all the platforms for information on you but I’m unsure about the accuracy but in the meantime, because of the way the systems work you may find information on one platform about you that doesn’t appear on another. This is what one of the agencies said to me:

 

However, please know that the information held by xxxxxxxxx is dependent on what is shared with us by lenders. Not all lenders share account information with all credit referencing agencies, and so it’s possible that we may not hold any information at all about a particular account. This is why we recommend that you check your credit report with all three major credit referencing agencies, in order that you can get a complete view of the information held on you.

 

So much for the adverts on TV enticing you to check your credit score with them. If you are just going to check one it might be useful to know that 76% of lenders use Experian, 54% use Equifax and 30% use Call Credit. Why doesn’t this add up to 100%? Because some lenders search 2 or all three platforms. The Moneysavingexpert has helped out by listing the various lenders and which credit reference agencies they use. So if you are applying for say a credit card with the Co-op you will see that they only check Experian so that’s the one you need to check out. Here’s the link:

 

http://www.moneysavingexpert.com/credit-cards/credit-reference

 

There are no legal obligations applied to searches and the amount of time they should remain on your file but for information credit searches remain on your Experian and Eqifax files for 12 months whilst they remain on Call Credit for 2 years.

 

Oh and as a couple of final thoughts, firstly if you are looking to take out a loan, thanks to the EU Consumer Credit Directive of 2010 those advertising representative APR’S must be seen to provide 51% of all customers with the rate advertised. This changed from 66% under our own UK legislation so the EU has provided banks and other lenders a licence to print money. And to prove my point, in an advert on Barclay’s Bank website they advertise a personal loan of between £7,500 and £15,000 at an APR of 4.9% Representative over 2 – 5 years. It also says rates may differ with a tiny 3 attached to it. This is what tiny 3 says right at the bottom of the page:

 

  1. The rate you’re offered may differ from the representative APR shown – and will be based on your personal circumstances, the loan amount and the repayment term. The Barclayloan advertised here is available over terms of between 2 to 5 years, with a maximum APR of 26.9%.

 

Wow, bit of a difference eh! And as they only need to provide the 4.9% APR rate to just 51% of the customers how many of the other 49% do you think are having to pay closer to 26.9% than the 4.9%? Hmmm!!

 

Secondly, and finally, there is confusion over your ability to obtain finance and your credit score. Having many credit searches on your file will, in many cases, drop your credit score slightly. So your score may drop from say 99 out of 100 to say 95. In some cases I’m told that your credit score won’t be affected at all but this doesn’t mean you can finance a new Ferrari on a take home pay of £2,000 per month.

 

And this is where the more important score comes into play, the underwriters ‘Score Card’. This score takes into account many other things such as where you live, what company you work for and the industry you’re in, how long you’ve been in your current job, number of dependents and of course your income along with many other factors, put together by each individual lender.

 

It is this scorecard that determines whether you will be advanced the money or not, not your credit score which is just part of the equation. By all means make sure that you look after your credit and maintain a high credit score but remember that a high credit score doesn’t mean auto accept on anything you want to finance.

 

Absolutely finally if you find that you have applied for credit at several dealerships over a few days then changed your mind, or applied online, not for a ‘quote’ but actually for the finance to several lenders, leaving a string of Credit Searches on your credit files, make sure that you explain what happened on each of the 3 credit agency files by posting a ‘Notice of Correction’.

 

Explain that you have been test driving cars and each time was talked into checking if you could be cleared on finance by their lender or if you have been applying for finance online and again not realised that search footprints, left behind, might affect your credit score, post a note to this affect. If you do this it forces an underwriter to check your file rather than rely upon the autoscore to either accept or reject your final application.

 

In fact the same applies if you have some negative activity on your file (defaults, arrears) as a result of say a marriage breakup or redundancy, you have 200 words to explain what happened and that you are now on top of things (if you are). It could certainly help your application if the problems took place some time ago, Just thought I would mention!

By Graham Hill

 

 

Graham Hill’s Advice On Preparing For Credit Part 3

Monday, 22. September 2014

OK, we are now on the final straight, I am now going to talk about the finance application itself. But before I discuss the content there is an overriding requirement on you to answer each question accurately, if you don’t and you are found out, then you could be considered to have acted fraudulently.

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I have searched everywhere and sought legal advice but can’t find anywhere that you are committing a criminal offence when providing incorrect information on a finance application – unless of course it was the result of identity fraud/theft, which is a criminal offence and will land you in nick for a fairly substantial time.
However, the industry has gotton around this issue of fraudulent applications by subscribing  to something called CIFAS (Credit Industry Fraud Avoidance Scheme). If a lender suspects (with very good reason) or finds that you have committed any form of credit or insurance fraud they can enter your details on the CIFAS register which then also appears on your credit file for all lenders to see.
The information held is supposed to be considered advisory – alerting any potential lender to look at any application from this applicant more carefully. It can also protect you if it is known that someone has tried to make a false application by stealing your identity. They say that this is more address based than individual but I would take that with a pinch of salt!
The credit reference agencies (CRA) are not allowed to incorporate the CIFAS warning into the automated credit score nor is it to be considered to be ‘adverse’. Lenders should also not take into account CIFAS alerts when making a credit decision, simply carry out more checks on the applicant.
CIFAS goes to great lengths to explain that a CIFAS warning on your credit file won’t affect the decisions of lenders to agree a loan but in the real world if another lender has reported some fraudulent activity on your part it would certainly influence my decision if I was an underwriter and without doubt it will influence theirs.
If you are advised of a warning (you should be told before it goes on your file) or see it on your credit file, if you are not happy then write to CIFAS and the company placing the info. on your file. We are now onto the application having explained the importance of being honest. The next most important thing to do is to give as much information to the lender as possible.
You read a lot about your credit score with lots of advice surrounding your credit report, which I don’t disagree with, but just as important is a mysterious measure, used by all lenders, called the ‘Score Card’. It is the lenders’ score card that initially provides an instant acceptance or an instant decline when you make your finance application.
The problem is that the way each application is scored is so secret that often the underwriters don’t know how it is created but like the credit score on your credit file it is simply a load of points for different items on your credit application added together to form a numerical opinion of your credit worthiness.
Most lenders will have a risk committee who decide what points to award each item on the application but one thing is for certain if they don’t have the information they can’t give you a score so tell them everything. A good broker will be of great assistance as he will know which lender is most likely to approve your application. The cheap bucket shops will just propose you and hope you get through. If you don’t they often don’t have enough profit in the deal to waste time trying to get you through.
Reverting to an alternative funder or through another broker at this stage could well lose you the deal as each search on your file drops your credit score. When you complete your application form, either in handwriting or online make sure you answer every question and make it as easy as possible for the underwriting staff.
Don’t forget those that deal with your application are human beings and if they get frustrated because they can’t read your writing they may omit something that costs you enough points to result in a decline. Use capital letters and make sure your form can be read easily if completing the form manually. Each question is there for a reason so make sure you provide answers to every question. If you have middle names – show them. It helps when carrying out a credit search to find you.
Make sure that you put your correct date of birth and it is legible. These two pieces of information are used to generate a copy of your credit report and verify your current address. Most lenders now require 5 years of address history, don’t say you have been in your current address for 5+ years when you have only been there for 2 years.
They don’t just take your word, this is a verification process as they can see your address history on the voters roll with back links. If you have missed addresses it will cause concern. You should know that if a lender or leasing company is providing a very low APR or very cheap monthly lease rate they have shaved their margins so they will only accept those who are way up their score card.
Those offering higher APR’s or lease rates are more likely to consider applications from those with less than an absolutely perfect credit score. Searching out the very cheapest rate may not be the best thing to do unless you know your credit has been perfect over the last 6 years and that there are no late credit card payments or missed loan repayments or CCJ’s even if satisfied.
Having a great credit score does not mean you will automatically be approved when you make a credit application. Your credit score is based on historical events, your application uses statistics to determine whether you are likely to pay in the future. A few years ago lenders kept an open mind if you didn’t show up at your current or previous addresses as lenders would still record credit information against each of your addresses, irrespective of whether you were on the voters roll.
They would simply ask for proof that you were living at the current or previous address. These days, as the voters roll is much more accurate and is updated immediately rather than often weeks after you have moved, it is more important to make sure you are on the voters’ roll even if you have no intention of voting. Some lenders believe that if you are not on the voters’ roll it is for sinister reasons. Either you don’t want to be found or you are avoiding paying council tax, both of which would put off a lender.
One further point about your address, don’t make the job of the underwriter more difficult by only showing part of your address, omitting part of your postcode or leaving out your postcode altogether. This is often done when providing previous addresses – very irritating! Also, make sure that you show your full address, even though you have named your house Dunroamin, show the number of the property also as the name may not show up in the searches.
The form will ask if you have dependents? The secret is in the name so anyone who lives at your address who depends upon you to live is a dependent. Children or elderly relatives would be dependents as well as a wife who doesn’t work. People think this goes against you in terms of credit score but if anything it improves the score as you have responsibilities so you would take your income and commitments seriously. By the way as each lender is different I am basing what I am saying on information shared with me over the years by lenders, underwriters and leasing company directors.
As I mentioned earlier all lenders have their own set of rules and hence the reason why one company may decline you whilst another accepts you even though you have provided exactly the same information. So when it comes to dependents, having a few is more likely to work in your favour than against you.
The next question and one that is very misunderstood is address status. In other words, is your home owned, rented, living with parents etc. Owning your property will give you a few extra points but you don’t have to own your home for you to obtain credit. I recently funded a £100,000 Mercedes for a customer who lives in a rented property.
There are often times when there is no equity in a property and I have had clients who have sold a property at an amazing price and are taking their time to find a new place whilst living in rented accommodation in the meantime. Many people these days have invested in a holiday home or ‘buy to let’ property. It is advisable to let the underwriter know if you have additional equity sitting in other properties, this information can only add to the comfort given to the underwriter, especially when you are looking to fund an expensive car.
Now to the figures that you show on your application. Be very careful, whilst the underwriter may not place a great deal of reliance on the figures you provide they may ask for statements (mortgage/bank) to back them up and they also have access to data that will give an idea of property values in your area. Your mortgage details are also held on your credit file so make sure that when asked roughly what the value is of your property and what you have outstanding try to be as accurate as possible.
More important to lenders these days is your net income, some will even ask for a breakdown showing net income less your regular expenses. This is not the lenders being awkward, it is a result of the new ‘affordability rules’ imposed upon them when considering an application by the new FCA (Financial Conduct Authority). Be careful because they may ask for last 3 months bank statements or your last P60 and you don’t want either to prove that you are lying about your salary.
Also, if your income is made up of several sources such as a job but also rental income on a buy to let property, pension, annuity etc. make sure you let the lender know. Unfortunately if you use a bucket shop they won’t have time for this which could lose you a great deal.
Marital status is not so clear cut these days as more people find it beneficial not to be married to their partner for tax reasons as well as financial and practical reasons.
Whilst you may still gain a few points for being married or in a civil partnership over being single/divorced/separated it will be minimal but could make all the difference when applying for the cheapest deal where the credit bar is set very high.
Your occupation is a big points winner or loser on your application and yet applicants, as well as some brokers/dealers either treat the question with contempt or for some strange reason consider it an intrusion.
One of the worst job titles used on applications is Consultant because you could be a consultant surgeon or something very obscure like (and I have seen this) a consultant tree hugger. Whilst I don’t know the way that these titles would be scored the chances are that the title consultant will simply attract the lowest score whilst a consultant brain surgeon is likely to be close, if not top of the scale. So make sure that you are specific about your job title. Points are awarded as a result of statistics and the perceived security of the type of employment.
Make sure that whilst your job is rarely checked you describe your job accurately. You will also need to give 5 years job history, again, like moving home, if you move jobs frequently this will drop your score as will periods of unemployment. Beware, if you show yourself as being in full time employment over the last 5 years but you have put information to the contrary on LinkedIn or Facebook there is a vague chance that you could be caught out.
Your bank details need to be accurate and there are various checks that lenders can carry out to ensure that the bank account given is accurate, after all they will be taking direct debits out of this account so need to know that it exists and its status. If your account is in joint names then make sure that you say that on the application and the time with the bank can score an extra point or two with some lenders if you have been with them for a while so if you have been with the same bank for 20 years say so.
Finally we are onto employer details. Lenders have started taking more notice of the company you work for when underwriting. In the past if you have been a director of a company they have always checked out the strength of the business but with the new affordability rules forcing the lenders to take more care more lenders are taking a closer look at the strength of the business and if it looks as though it is on the brink of collapse they are as likely to decline you.
Depending on the size of the deal some will carry out a telephone check so make sure that you include their telephone number. They may even try to speak to you at work on the premise that they are checking details when in fact they want to know that you are working where you say you are (very common with mortgage applications). They are not trying to find out how good you are at your job or whether you were sacked from a previous job, they just want to confirm the information on your application.
In the past a director of a company that has been struggling has put his title down as General Manager or just Admin Manager to avoid having a search on the company but many of the lenders are more diligent these days. So there you have it, answer all the questions on the application form. Be honest and make sure that the form is legible.
Oh and don’t make the mistake that one applicant made, not one of mine of course, he was a plumber and some of his income was cash in hand and didn’t go through his bank. He had a car and a van but wanted to get a car for his wife. He knew that he could afford it but due to his cash business he knew that his bank statements wouldn’t reflect his true income so he said that the car he was getting was a replacement commitment for his own car, a note was made on his application.
As a result the deal was accepted with the condition that the finance company had proof that the finance on his current car was settled – caught out trying to be too clever. On the other hand if the new car is a genuine replacement then tell the finance company/broker/dealer this will help your application. By Graham Hill

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

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

Finance Application Successes And Failures Revealed

Wednesday, 18. June 2014

Following on from my last piece it seems that 1 in 6 applications for finance were rejected last year according to statistics revealed by OceanFinance.co.uk. It will be interesting to see how this compares to 2014 following the introduction of the new Financial Conduct Authority (FCA) rules in April of this year.

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.

They found that more than a third of the adult population (38.6%) applied for finance of some form or another over the last 12 months. This was an increase from 2013 when 33% applied for one or more of the popular credit products. Men are more likely to apply than women by quite a margin, 43.6% vs 34.4% over the last 12 months.

The age group most likely to apply for credit are 25 – 34 at 60.6% whilst only 17% of the over 55’s applied for credit according to the stats. The most likely decline would be if you apply for an overdraft at nearly one in five declines (18.6%). 16% of those applying for a personal loan get declined.

The good news for applicants last year, not so sure the same will apply this year, is that car finance applications were most successful with just 11% being rejected. Applications for a first mortgage was the type of  finance that lenders liked the most as they were most likely to be accepted, no doubt helped along by the Government incentives reducing the risk. 84.5% of all applications were accepted over the last 12 months.

The type of lender most likely to lend to applicants are what are known as ‘crowd lenders’ or ‘peer to peer lenders’ with an acceptance rate of 86%. It was also found that rather than operate a straight accept or decline process applicants were offered a higher rate of interest if they were felt to be higher risk, particularly when applying for credit cards.

I fear that this will all change dramatically over the coming year – for the worse! By Graham Hill

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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Credit Score Used To Assess Car Insurance Risk

Wednesday, 12. March 2014

Insurance bloody insurance, I seem to write something about this every week but for once I have something to report on that shows we aren’t so badly off after all. Young drivers pay more for their insurance than they pay for their cars unless they drive a car with pedals, have a tracker embedded in their arm and only drive between 10.00 and 11.00 in the morning.

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 days when your dad took out insurance on the kid’s car and named the youngster as named driver are long gone. In fact they have even given this heinous crime a name, it is called ‘fronting’ and if your youngster has an accident the insurance loss adjuster will turn somersaults to try to prove that your son or daughter is the main driver in order to decline the claim.

But just as I thought that our car insurers are the worst on the planet I read about the way that US insurance companies assess the risk of drivers over there. Everything looked fairly similar until I read that when you took out insurance in the US the insurer carried out a credit search.

Not for the obvious reasons that they want to convince themselves that you will make the monthly insurance premium payments but to use your credit score in assessing your risk!! What? It’s true. According to one of their large insurers if you have a low credit score you are believed to be more irresponsible and more likely to have an accident.

I couldn’t believe it when I read it. Are they for real? Now this fact has come to light various driver groups are campaigning to stop this ridiculous assessment. And I totally agree. Over here they don’t go through a full credit assessment even to assess whether you will make your monthly repayments, as the insurer would simply take you off cover if you didn’t pay.

But to suggest that you would be more of a car insurance risk because you have a low credit score is bloody ridiculous! So it would seem that the insurers in the UK are not so bad after all. By Graham Hill

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Credit Underwriting In The UK Needs A Re-Think

Wednesday, 10. August 2011

The credit system in the UK is in need of a really good shake up. Credit decisions seem to be made based on some very iffy information and totally illogical. Take two people doing similar jobs, earning the same amount of money who both apply for credit on similar cars. The first client has a perfect, unblemished record. He has a mortgage and a couple of Read more

Why Applicants With Good Credit Are Declined For Finance

Tuesday, 12. October 2010

Factors contributing to someone's credit score...
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I have issued another general warning about the lack of money available to lend and the subsequent repercussions. I have had many people writing to me explaining that they had strong credit but have been declined for loans on several occasions and are now being told that they have dropped into the sub-prime category, which means they will pay high rates of interest if they are able to secure finance at all. The reason for this is the fact that whilst there are still lenders willing to offer low rates Read more

Still Difficult Times Ahead For Car Finance Applicants

Monday, 13. September 2010

Grant Thornton International
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On the 14th September I attended a meeting of the good and great in the vehicle finance industry at the London offices of Grant Thornton. The purpose was to debate the challenges of the industry which would be reported in the journal of the industry, Motor Finance. There were many conflicting views but the bottom line is that we are still in for a tough time. Clearly there is a lack of liquidity in the vehicle finance Read more