Introduction - there are many financial products set up specifically targeted at people with an adverse credit. With the scale and impact now exposed of individual's with poor credit taking out sub prime mortgages in America, lenders all around the world are more cautious about assessing individuals creditworthiness. They have tightened up borrowing criteria, when assessing applicants for loans and other borrowing. Lenders are looking for people with a good credit history report, to minimise the potential impact of writing off bad debts in the future. Every time you borrow money or uses some type of credit facility to buy something, it is likely that someone will check your credit history report to ensure you are credit worthy enough. Banks, mortgage lenders and other credit history report providers have their own internal rating or credit scoring an individual. Major organisations will also access the major external credit referencing agency's computer to provide instant details, regarding an applicants poor payment history, County Court Judgements (CCJ's) and defaulted payments....
Credit Reference Organisations - the main credit referencing agencies in the UK are Callcredit plc, Equifax Plc or Experian Ltd. Credit referencing agencies provide lenders such as banks, retailers and building societies, personal information about you. They have assigned a credit scoring points system to everyone they hold a file on. This assessment is based on the history of their repayments and borrowing over the years and many other factors. Lenders do not refuse borrowing applications on the basis of religion, gender, race or sexuality. In practice, when lenders refuse an applicant, they say your credit score is too low to meet lending criteria. The lending score is a numeric metric of a combination of factors used to judge an applicant. These include postcode, loan defaults, CCJ's, existing commitments, mortgage arrears, fraudulent applications, bankruptcies, IVA's, administration orders, the number of credit checks in the past 12 months and other social economic factors. They also access other systems such as the Credit Industry Fraud Avoidance System (CIFAS) and the Gone away information network (GAIN). These provide additional indications of the suitability regarding an individual's integrity and credibility, and hence chances of them actually getting their money back in the future.
These agencies do not assess individual credit applications. Their role is simply to provide a potential lender access to time sensitive and personal information on the applicant, upon which the potential lender can then base a decision as to whether or not to provide credit. Individuals with virtually no track record or experience of credit will bizarrely have a worse credit rating score than somebody with a couple of loans and credit cards. This is because there is at least some kind of personal history to make and measured judgement upon, (assuming of course that person that person has kept up with their repayments). Conversely, the person with virtually no track record is an uncertain question mark, in the assessment criteria used by credit referencing agents. Uncertainty equals risk and risk equals a poor credit rating.
Check your Own Credit Report History - it is possible to check your own credit file, under section 7 of the data protection act 1998. Under the act, an individual can apply for a copy of the file. This can be done at very little cost of two pounds per application either online or by post. Further details can be obtained from the following companies:-
- Equifax Plc, Credit File Advice Centre, PO Box 1140, Bradford, BD1 5US
- CallCredit Plc, PO Box 491, Leeds, LS3 1WZ
- Experience Ltd, Consumer Help, PO Box 8000, Nottingham, NG1 5GX
- County Court Judgements - a CCJ can only be removed after it has been discharged, or in the case where it has been incorrectly added in the first place. CCJ are discharged after six years. If they are satisfied and have been paid then this will be noted. You can ask a county court via the credit referencing agency, for a 'certificate of satisfaction'. This will mean that lenders can see you have no outstanding personal debts (which may impact your ability to repay debt to them if they chose to lend you money in the future).
- Default Notices - unless a finance company agrees, a default notice cannot be removed from a credit file. It is possible for an individual to have it removed if payments have been brought up to date and or an agreement has been reached with the finance company regarding a rearrangement of the debt. The physical process for removal will involve receiving a confirmation letter from the lender in question, which then needs to be forwarded to the credit referencing agency, with a request to amend their records.
- Termination Notices - individuals with store cards and accounts with mail order companies, can sometimes forget to clear outstanding balance. These unpaid balances, which left unpaid, can create bad debts and black marks on your credit rating. It is possible to have a termination notice removed by requesting a written confirmation with the mail-order company concerned that you have now cleared your account balance. This needs to be forwarded to the prospective lender and the credit referencing agency in order to amend their credit file on you.
- Associations - it is possible to add a 'disassociation' note to your file in circumstances where other family members or partners with debt problems, previously shared the same address as you. For instance, couples who live together and then split up at a point in future, sometimes have an 'association' on both their credit record histories. Credit referencing agencies use postcode and address data to identify where individuals live and this is how people become 'associated'. If following the separation, one of the individuals obtained a bad credit rating, this can rub off on the other party. In this situation it is possible to send a 'notice of non-association' letter to the credit referencing agency so they can amend their records.
Credit Account Information Sharing - in the UK, lenders to share information on a centralised database called the credit account information sharing system or CAIS. The purpose of the system is to swap details of individuals with a poor credit history for the collective good of all lenders. By sharing information, lenders are more easily able to minimise the risk of a bad risk through fraud or refused applications from other lenders. If an applicant already has debts, they may not be able to able to afford to repay the new loan money they are now applying for. The system is integrated into the credit referencing agencies and updated monthly basis. Any lenders that access a credit file using this mechanism, needs the written consent of the applicant and may not extract personal data for any use without the express written permission of the applicant, under the Data Protection Act.