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MISSING PAYMENTS WILL HAVE SEVERE CONSEQUENCES AND MAY MAKE OBTAINING CREDIT MORE
DIFFICULT IN THE FUTURE
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Why Can’t I Obtain Credit
Have you ever applied for credit, been refused and do not know why? Below you will find some useful information that may make it clearer.
How Do Lenders Decide Whether to Accept or Reject an Application?
When any of us apply for credit we are assessed in several ways. The lender will want to know not only if we can afford the repayments, but also the likelihood of us actually keeping to the agreement that we have entered in to. They will usually do this in a number of ways. Lenders will typically use a combination of credit scoring and credit reference checking.
What is Credit Scoring?
Most lenders will use an electronic application system to assess us for credit. They will input all of our details, such as name, address, occupation, time with bank, income and time at address amongst other things. The computer system will then use this information and translate this into a score.
The points system will be based on previous statistical information that the lender has. For example, if everyone they ever gave credit to who lived at their address for less than one year failed to keep up repayments, this would tell them that statistically poses a bad risk. Therefore if you have been at your address for less than one year, you are likely to achieve a low score in this area. Obviously this is just an example and the scoring system is an amalgamation of all of the information entered.
Once the score is generated, this will be compared against the lender’s minimum score for acceptance. If you score above this you would be accepted and below this you would be refused.
Credit Reference Checking
Along with the credit score lenders will rely upon the information that is provided from a credit reference agency. These companies hold information about how we, as individuals, have managed our finances in the past. Click here to find details of the main credit reference agencies.
The report received by the lender does not include any information about why we may or may not have paid our debts in the past, it merely provides factual information about whether payments were made on time or not.
The report will also show if you are registered on the electoral register at your address and whether or not you have any County Court Judgements (CCJ’s) placed against you.
How can I see my credit report
It is possible for you to obtain your credit report and therefore see what information lenders are able to see about you. There are three main credit reference agencies and you can find their details by clicking here.
When you visit the credit reference agency web page it is likely that they will be promoting offers for seeing your credit file and subscribing to services that mean you will need to pay a monthly or annual fee. You can subscribe to these services if you wish, however you are entitled under the Consumer Credit Act 1974 to see you credit report for a statutory fee of £2.00. Ensure that you browse the web page until you find information on how to do this as the agency would clearly prefer you to pay more money to subscribe to their services.
Why do some lenders accept me for credit whilst others don’t?
All lenders have different criteria when assessing for credit. Some are willing to take a higher risk than others and provide credit to people when other lenders may not wish to do so. Also, lenders have different statistical information and use the credit scoring in different ways, it is entirely feasible for you to pass one credit score with flying colours but be refused minutes later by another lender.
Lenders at times differ the pass mark for their lending criteria to relax or tighten up on who they will lend money to.
What is my credit score?
There are services out there that offer to tell you “your credit score”. However this is meaningless, all lenders have their own scoring system, made up of different questions. Lenders also differ in how you score for different information and have different pass marks. It is therefore impossible for anyone to tell you “your credit score”.
Missed repayments
In the event that we miss our monthly repayments the lender will send this information to a credit reference agency, who will in turn record this against our credit file. Normally this would be recorded with the number of months that have been missed in succession.
Defaults
Should we miss a number of payments the lender can decide that we have now failed to meet the conditions that were agreed on the original credit agreement. If we fail to respond satisfactorily to the lenders requests for payments then they are able to terminate the original agreement.
The lender will send this information to the credit reference agency who will record this as a ‘default’.
Although the credit agreement is cancelled by the lender, this does not remove the obligation of us repaying the full balance.
CCJ’s - (County Court Judgements)
When a lender has been unsuccessful in obtaining repayment of a debt they may decide to take us to court. This will be recorded as a ‘judgement’ on our credit file. These cases are heard in the County Court hence the term County Court Judgement.
As above, this information will be recorded on our credit file.