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Credit Checks

Lenders will almost certainly do a credit check on a loan applicant before deciding whether or not to lend money. There are several credit reference agencies whose work involves keeping details of everyone's credit history, everyone that has used credit that is, how they manage their finances, if they pay their bills on time, or indeed, if they pay them at all.

Credit Reference Agencies - what are they?

The three main companies operation in Britain are Equifax, Experian and Callcredit plc. These are large companies, some world-wide operations, holding massive databases of information, including information supplied to them by the main retailers, the banks and credit card companies. They also get information from the electoral roll, information supplied by lenders, and records of judgements made by the County Courts - County Court Judgements (CCJ's).

Can I see my Credit Record?

You can request to see and inspect your own credit report held by the credit reference agencies. Write to them giving you full name, date of birth, and current and previous addresses for the last six years, and enclose 2 cheque/PO. They should send you the file within 7 days, plus an explanatory booklet.

Experian
Consumer Help Service
Experian Limited
PO Box 8000
Nottingham
NG1 5GX
Tel: 0870 241 6212
Web: www.experian.co.uk


Equifax Europe
Equifax
Credit File Advice Centre
PO Box 1140
Bradford
BD1 5US
Tel: 0870 010 0583
Web: www.equifax.co.uk

CALLCREDIT PLC
One Park Lane,
Leeds.
West Yorkshire.
LS3 1EP.

Tel: 0870 060 1414
Web: www.callcredit.plc.uk

What is Credit Scoring?

Credit lending has reaching a high degree of sophistication, so much so that lenders can give very rapid decisions on how much money they can lend to an individual - sometimes these decisions are almost instant. They are able to do this by the use of the information on file with the credit reference agencies above and by using sophisticated computer credit scoring systems (algorithms) which can evaluate an individual's lending risk statistically.

Different lenders have different systems, so if you are turned down by one lender this should not mean that you will necessarily be turned down by other lenders as well. If you are turned down try not to take it personally - just apply again to another lender.

Lenders will not normally tell you why they turn you down. They will just say that you failed to reach their credit scoring pass mark or a credit reference agency has given them information to suggest you are a bad credit risk.

If you are turned down it's a good idea to get hold of your credit report to get some idea why. It's a good idea to view your credit report periodically anyway in these days of identity fraud to ensure no one has accessed your accounts or stolen your identity.

Credit reference agencies have access to the following and credit scoring systems will use some or all of this information as well as the additional details about you requested on the loan application. Every rating system is different but here are a few factors which might affect your score:

1) The electoral roll, which will confirm where you live and how long you have lived there. Generally, moving around a lot will adversely affect your credit rating. The longer you have lived at an address the better as far as your credit score is concerned.

2) Your post code. Where you live is another factor which affects your credit score. Just like insurance risks, the more affluent the area in which you live, the more favourable this is for your credit rating.

3) The Register of County Court judgments and bankruptcies - show whether you have ever had a court order made against you for not paying your debts.

4) Current or previous or credit accounts that you hold with other lenders - will show if you are up to date with your payments.

5) Your payment history is very important: If you pay your bills, loans and credit off and on-time your credit score will hugely benefit.

6) Outstanding debt as a proportion of your income. If you have too much your credit rating will be adversely affected.

7) The length of your credit history. Young people with little in the way of credit history sometimes have difficulties with obtaining credit - it's chicken and egg! Consequently, it's a good idea to start off early with small amounts of credit and build a good score slowly by paying your commitments on time.

8) Having a lot of recent credit applications or having too many credit cards in issue can go against you.

How do I increase my chances of getting a Mortgage?

Mortgage applications tend to be time consuming and rather bureaucratic. You can't blame the brokers or the lenders because great care needs to be taken before lending large sums of money and there are many government regulations to be complied with. Lenders do you no favours if they lend you more than you are capable of handling.

The application assesses whether or not you meet the lender's underwriting criteria based on the experience of many, many loans. There are some basic factors that they look for:

  • Your employment (how secure it is) your income and/or the potential income from your investment property. Lenders may take into account other forms of income as well. In the case of the self employed, you may need to provide 3 year's audited accounts, unless self-certification is accepted.
  • The amount of capital (equity) or deposit you are willing / able to provide. The higher the loan to value (LTV) the higher the risk you are to the lender. If you have a tract record of property investing your lender may be more relaxed about this, but generally the bigger the deposit the better as the lender sees this as an indication of your commitment to the investment.
  • The property value, its present condition, its location, it's potential rental income and the type of construction are all factors which affect your ability to borrow. A survey and valuation will show these factors up to the lender.
  • Proof of identity will be required and the lenders will want to see that your intentions in acquiring the property are legitimate and honest and your motivation behind the purchase is for the right reasons.
  • You will almost certainly be asked for your last six months or so bank statements, both to verify your identity and to show how you manage your account. They will want to see your full financial commitments such as more mortgages, hire purchase commitments, credit cards, overdrafts, student loans, other loans, maintenance payments etc.
  • You may need to provide references from your bank, existing lenders and landlords.
  • The lender will almost certainly request a copy of your credit file as described above.

What if the information on my file is not Correct?

You can write to the agency to explain why the information is incorrect and ask them to remove or change the information. They must do this within 28 days of receiving your letter and send you a notice stating they have removed the incorrect entry, amended it, or taken no action, in which case they must explain why.

If the agency refuses to amend the record you are able to send a statement (up to 200 words) explaining your side of the story and ask them add it to your file. This is called a "Notice of Correction".

The agency must then send a copy of this notice to each lender that requests your file. Should the agency refuse you can appeal to the Director General of the Office of Fair Trading or the Data Protection Registrar.

If an agency has incorrect and damaging information on your credit file it may be libellous. There is a right to compensation under Section 13 of the Data protection Act 1998 if you can show you suffered damage as a result.

Credit Repair - can I get my Credit File Improved?

You can improve your credit score fairly quickly by some simple straightforward and common sense measures. Look at the factors above that will impact on your credit score and start to put them in order one by one. For example CCJs cannot be removed until you have discharged the debt - start to make payments towards your debt.

There's no easy way and don't expect miracles. Be ware of companies promising to repair your credit history. Generally, they are unable to do anything you cannot do yourself and they'll charge you a fat fee.

Some Useful addresses:

Dun & Bradstreet Ltd.
Marlow International
Parkway
Marlow
Buckinghamshire
SL7 1AJ

Tel: 01628 492000
Web: www.dnb.com/uk


CIFAS
4th Floor - Central House
14 Upper Woburn Place
London
WC1H 0NN
Web: www.cifas.org.uk

http://www.insolvency.gov.uk/ - Check for Bankruptcies or Individual Voluntary Arrangements

http://www.nationaldebtline.co.uk/england_wales/factsheet.php?page=05_credit_reference_agencies

http://www.insolvencyhelpline.co.uk/debt_factsheets/credit_reference_agencies.htm

http://www.if.com/info/creditscoring.asp

Http://www.tenantverify.co.uk  - Tenant Credit Check Service

Information here is general only & believed to be correct, though we cannot guarantee it, nor do we accept any liability if you act or fail to act on this information. Always seek professional advice before making decisions. Investments can go down in value as well as up over  time.