Abstract
This article outlines what is contained in a personal credit report, where the
information is obtained from and how it is used by lenders.
It explains the importance of keeping your credit report in good order and
how that can be achieved, how credit scoring works and gives advice on what to
do if you disagree with any of the information in your report.
It also explains why credit repair companies are bad for your health and why
they cannot do anything to improve your credit report that a credit reference
agency can’t do at no cost.
Introduction
For many consumers, the checks and decision-making that take place when
applying for credit are a mystery.
Myths and misconceptions abound.
► Is there a blacklist and am I on it?
► Will the borrowing record of the people who used to live in my house be taken
into account when I apply for credit?
► Will the fact that I had a credit application refused last year affect my
credit rating today?
► Thankfully, the answer to all three of these questions is a resounding ‘no’
and credit checks are actually not as puzzling as some would have us believe.
Under the microscope
When someone applies for credit, the lender simply wants to find out whether
they’re a safe bet to repay what they want to borrow.
So they carry out checks to see how they repaid credit in the past, how much
they owe at the moment and whether their general characteristics suggest they’ll
be a trouble-free and profitable customer.
They do this by consulting the information held by one of the UK’s credit
reference agencies, and by looking at the
information the customer provides when they apply for credit, such as details of
their job and wages, regular outgoings and residential and marital status.
Lenders usually assess this information using automated credit scoring.
Relevant pieces of information are given a score, for instance, ten points
for a settled credit card account with a perfect payment history and minus ten
points for a loan that has been defaulted on.
These scores are then added up and compared to the lender’s predetermined
pass mark.
If the individual scores enough, they will usually be offered credit.
What confuses some consumers is the fact that no two lenders award points in
the same way or set the same pass marks.
In fact, some have different scorecards for different products.
An applicant may be refused by one bank and accepted by another based on
exactly the same information.
Although lenders won’t usually reveal exactly how their scoring systems work,
if someone is refused credit they should at least tell them the main reason,
including whether there was a problem with the information supplied by a credit
reference agency.
A healthy record
The information the credit reference agencies hold about an individual shows
their current and past borrowing record.
The agencies gather this information from public records and private records
provided by the UK’s main lenders, who routinely share information about
customers’ repayment histories to help them lend in a responsible way.
Lenders can only check a credit report with the applicant’s permission and
every search is logged and held for up to two years.
That way, lenders can easily spot abnormal activity, such as identity fraud,
and the applicant can see who has checked their report whenever they ask to see
a copy.
The agencies will provide an individual with a copy of their own report for
around £2.
They may also offer online services, some of which will monitor the report
for changes, which may cost a little more.
Consumers keeping finances in good shape
For many people, having a regular look at their credit report helps them to
keep their finances in good shape.
It can also help them to spot the early signs of identity fraud.
Lenders not only use the credit report information to decide whether to
accept or refuse credit applications but also, increasingly, to determine what
interest rates to set.
A good credit record can help them secure the best credit deals.
The majority of the information credit reference agencies hold is positive
and shows that most people manage their credit commitments really well, but some
get into difficulties from time to time.
Although the factual information on a credit report can’t be changed simply
because it is embarrassing, it’s worthwhile suggesting that clients check their
report to make sure the information held is accurate and up-to-date.
The credit reference agencies will mark any disputed information as
unreliable while they liaise with the source to put it right.
Individuals can also add a note to explain past problems, such as late
payments caused by a period of illness, by redundancy or relationship breakdown,
as that can happen to anyone.
Future lenders will see the note and may take it into account.
Improving credit reports
There are a number of things that your client can do to improve their chances
of getting credit.
► Make sure they are on the electoral roll.
► Make payments on time. If they cannot do this, they should contact the lender
as soon as possible to discuss what options are available.
► If they have paid a court judgment, make sure it is shown as being settled on
their credit report. If it is not, contact the court.
► If a bankruptcy order has ended or been withdrawn and this is not shown on
their credit report, they should send a copy of their certificate of discharge
or annulment to all credit reference agencies and ask for their report to be
updated.
► If they have paid off a credit account but their report doesn’t show this,
they should contact the organisation concerned and ask them to make the
necessary changes. Alternatively, they should contact Experian and we will
contact the relevant organisation for them.
► Close any accounts no longer in use.
► Avoid credit repair companies! If information on a credit report can be
removed or altered, the credit reference agency will do it for free. The Office
of Fair Trading has issued a warning that the advice and information given by
credit repair companies may be wrong and unhelpful and can even make the
situation worse, not better.
► Clients should always check their credit report. It always makes sense to get
a copy before applying for credit.
Your clients can check their Experian credit report free, by signing up for a
30-day trial of Experian’s online credit report monitoring service, available
at:
CreditExpert
James Jones is Consumer Education Manager for Experian.
Source:
Credit Control Journal
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