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.
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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