Get a loan, mortgage, credit card, contract mobile phone or even monthly car insurance and lenders score you to predict your likely behaviour. Scoring systems are never published and differ lender to lender, and product to product. So just because one company rejects you, it doesn't automatically mean another will.

Credit scoring doesn't just dictate what financial products you'll receive, but also how good the ones you actually get are. For example, most loan rates are 'typical', meaning the APR depends on your credit score; with credit cards, if your score's too low for the deal you wanted, you might get a different product entirely.

There are two big myths to clear up though...

• Credit ratings and blacklists DON'T exist.
  You DO NOT have a universal credit rating; nor is there a credit blacklist. It might not feel like that though, as while each lender scores differently, the information they use is similar. A bad risk for one lender is often a bad risk for others too.
  
• Lenders aren't obliged to grant credit.
  Applications are aggregated into millions, and banks prefer to deny a few good quality applicants rather than overspend on a personalised vetting procedures or accepting large numbers of unprofitable customers.

Credit scoring is about profit not risk!

This is a very important point, even good risk applicants can be rejected simply because they won't make the bank any money!

Banks pick customers for their own good, not yours, so the scoring process is about profit not risk. Of course risk plays a part, as those unlikely to repay are a threat to profits. Yet even the most solvent may be rejected if they're unlikely to act in a way that'll make profit for lenders.

If you pay your credit card in full each month you probably feel like the perfect punter but for credit card companies you're a nightmare. If they can spot this trend, you're likely to be rejected. The most profitable credit card customers are those who are perpetually in debt, never defaulting, but always managing to meet the minimum repayment!

Pay off in full every month, don't use cards enough, or always shift debt to 0% cards, and if they can spot you, they may even reject you!

Banks use a variety of information to make their decision whether to lend to you, including data held by three companies known as credit reference agencies - Experian, Equifax and Callcredit. Yet the info they have is by no means comprehensive.

What do banks know about you?

There are three prime sources of information used for scores.

• The application form.
  Here lenders obtain the crucial details of your salary, family size, reason for the loan and whether you're a home owner. Ensure you fill the forms in carefully; one slight slip, such as £2,000 salary rather than £20,000, can immediately ruin an application.
• Past dealings with the company.
  Companies use any previous dealings with you to help assess your behaviour, though complicated data protection rules can limit this.
• Credit reference agency files.
  Experian, Equifax and Callcredit compile information, allowing them to send data on any UK individual to prospective lenders. All lenders use at least one agency when assessing your file. This data comes from three sources...
  • Electoral roll information. This is publicly available and contains address and who lives with whom details.
  • Court Records. County Court Judgements (CCJs) and Bankruptcies indicate if you have a history of debt problems.
  • Financial Data. Banks, building societies and other financial organisations compile details of all your payments and transactions. Around 350 million records a month are tracked including black data which is details of any defaults, late payments or problems and white data which incorporates how you generally operate the account.
    
    Black data has always been shared by financial companies but now white data is shared too, providing there's customer consent. This means each lender now has access to all data about you from other organisations.

What banks don't know about you

There are many myths about what information is held on credit files. Don't be fooled, they hold an enormous amount of financial data, but not everything.
The following things are NOT listed on your report:

• Fines. Any fines you have incurred, for example parking or driving fines. Even though they're issued by the courts they aren't 'credit' issues so they're not listed.
• Savings Accounts. As savings are not a credit product they don't appear on credit files.
• Medical History. Medical problems you may have had in the past aren't listed.
• Criminal record. No criminal convictions are listed.
• Child Support Agency. Information from the Child Support Agency is excluded.
• Information on relatives. Provided you don't have any joint financial products (see below) there is no information about members of your family who live, or have lived, with you or any other third parties.
• Student Loans. This information is not currently supplied to credit reference agencies, so whether you have a student loan or not, is not included in your file. The only exception is if you have a County Court Judgment against you for lack of payment, then that can be included.
• Any defaults or missed payments more than six years ago. The time span of credit files is usually six years, so if something happened more than six years ago it won't be on your file.

How to check your credit score

As every company uses a different credit scoring procedure, pinpointing how any given one will view you is impossible. Yet keeping an eye on your general credit healthiness is important.

You have a statutory right under the Consumer Credit Act 1974, to write and get your files, yet this is slow and costs £2 per agency.

Click here for Equifax Opens in a new window
Click here for Experian Opens in a new window
Click here for Callcredit Opens in a new window

Once you've got your credit files, the key is to check the accuracy of the info that banks are judging you on. There is always a possibility of a mistake, so check it carefully! Are all your debts correctly listed? Are there any inaccuracies on your repayment history? Check your present and past address details. Errors here can lead to you being judged on someone else's credit history. Also your finances may be incorrectly linked with someone else's.

What to do if there's an error?

If you disagree with anything on your file, just write to the agency and request that it is changed. If the agency agrees it should quickly change the file, though sometimes you'll need to talk to the company that originally filed the data.

Unfortunately sometimes it may refuse to amend your file. If this happens you're entitled to add your own comments as a notice of correction. This will often mean your credit applications take longer, but it may help you to obtain better deals.

Don't go on too much when explaining the error though, be concise, explanatory and factual.

Was this answer helpful? If not, please contact us at welfarerights@isoshousing.co.uk

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