04/01/08

Turned down for a loan because of a poor credit rating

Lenders can refuse to provide credit for many reasons, quite often people are turned down for a loan because of their credit score.

When you apply for a loan, lenders have to make sure that you are who you say you are and live where you say you live. They also want to make sure that you can afford the loan repayments. They will look at the personal information you provide them on the application form such your job title and salary. They will also use a credit reference agency such as Equifax, Experian or Call Credit to undertake a credit check.

A credit reference agency does not decide who should get credit, instead they provide the lender with information to help them determine whether to accept your application. The information a credit reference agency holds about a person is usually referred to as a credit report (sometimes called a credit file).

Many lenders use automated credit scoring to help them decide if you will be able to pay back any money you want to borrow. They give points relating to the information on your application for credit and on your credit report. They then work out the total to give you a credit score. Each lender decides how many points they give to each piece of information and how many points you need to reach for them to accept your application.

While your credit report's contents will be roughly the same with each credit reference agency, how it is actually presented differs from company to company.

With Equifax the first thing you see is your credit score:

above 475: excellent;
400-474: good;
350-399: fair;
300-349: poor;
below 299: very poor.

Equifax uses a traffic light system that tells you what may have lowered your score.

It has a red, green or amber light for categories such as credit agreements, electoral roll and court information.

The information on your credit report comes from several sources but falls into two main categories – public information and financial data.

The public information includes:

  • Details from the full electoral roll which lenders use to help them confirm names and addresses.
  • Details of current or past court judgments and Scottish decrees, supplied by Registry Trust, which holds a list of judgments on behalf of the Department for Constitutional Affairs.
  • Details of bankruptcies, individual voluntary arrangements and administration orders, which come from the Insolvency Service.

    Financial data
    The UK’s major banks share details of their customers’ credit agreements. This means that when someone applies for credit, the lender can check they have repaid other lenders in the recent past or are repaying current credit agreements. They can also check how much the consumer already owes to other lenders, to help them decide if the consumer can afford to take on further credit.

    If your credit report shows that you repay credit on time, this will usually help you get credit.

    Once you close a credit account (such as a credit card, a loan or a mortgage), details of how you handled your payments stay on your report for six years. Negative information (such as a court judgment, a bankruptcy or a ‘default’ - a credit account you have broken the terms of) also stays on your report for six years.

    Making sure information held about you is accurate is extremely important as genuine inaccuracies can be corrected. It’s your legal right to see your credit report and to correct anything in it that you can prove is wrong.

    Experian Ltd
    http://www.experian.co.uk/
    0870 241 6212

    Equifax plc
    http://www.equifax.co.uk/
    0870 010 0583

    Callcredit plc
    http://www.callcredit.co.uk/
    0870 060 1414