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Preventing Your Credit Rating from Being Unfairly Punished

By: Kevin Dowling BA (IMC) - Updated: 23 Sep 2015 | comments*Discuss
Credit Punished Score Lender Reports

Growing numbers of people are having requests for credit turned down because their credit score is too low. Equifax, one of the country’s largest credit reference agencies has experienced an increase of 10% in the number of requests for credit reports over the last year, a clear indication that people are trying to establish why their application has been unsuccessful.

So why are people being unfairly punished and what can you do about it?

An Uncertain Environment for Lenders and Borrowers

The ‘credit crunch’ may have passed in the financial markets and UK banks that used to be in crisis are returning to making healthy profits, but it seems that when it comes to consumers, the crunch is still making it difficult for people to obtain credit.

More worryingly, it seems that banks are seizing on even the smallest indiscretion on a credit report in order to turn down an application for credit. Growing evidence suggests that past indiscretions on a credit report, for example a single missed payment, can now influence whether a credit score is high enough for an application to be accepted.

Some people are being penalised unfairly for innocent mistakes, such as missing a payment because of illness, changing bank account, moving house or going on holiday, while others are spotting errors on their credit report that are unfairly lowering their score.

The result is either that a credit application is refused, or the applicant is only allowed to borrow at a higher than advertised interest rate.

The Use of Credit Scores

Lenders rely on the credit reports provided by credit reference agencies. These reports are used both for existing clients and any new potential borrowers.

Credit reference agencies say that their scoring system is very objective, and that if a request for credit is refused it is because the applicant didn’t meet the lender’s pass mark for approval. Or perhaps they spotted information on your file that the lender considers to be negative.

It is therefore not so much a problem with the credit score itself, but with the pass mark from lenders being lowered.

It appears that lenders have been lowering their scoring systems to ‘weed out’ those applications from customers that they think may not be a good lending risk, even though the Government has made repeated requests for the same lenders to ‘loosen’ their lending criteria to help out already-stretched borrowers.

Lenders Are Getting Tougher

Lenders have also been paying greater scrutiny to customers existing levels of debt, and taking this into account before extending any credit limits or offering any new credit.

Last year, UK credit card companies made an agreement for increased information sharing on their customers. Lenders are now able to check whether a customer or potential customer paid their last bill in full, their credit limit and the number of credit cards they own.

They can also find out whether you have a habit of swapping your credit cards to get your hands on 0% interest balance transfers – and they are keen to make it tougher for customers looking to do so.

Of course, from the lender’s point of view, these new information sharing powers are vital to help them spot those people falling into greater debt, and to prevent them getting into further trouble.

There is, however, the suspicion that lenders are using their powers to raise the rate of interest on credit applications from anyone with a less than perfect credit score. After all, the higher the rate of interest , the more profit for the lender.

Protecting Your Credit Record

If you make an application for credit and are refused, or offered a higher rate deal as an alternative, you do have the right to ask the lender the reasons for its decision.

Lenders are not required to provide details of their credit scoring system but, according to the Information Commissioners Office (ICO) which has a website www.ico.gov.uk it should be able to give you the main reason it arrived at the decision told to you.

It also makes sense to get an up to date copy of your credit report from one of the main credit reference agencies (Experian or Equifax). If you find an error or something contained within your report that you cannot explain, then contact the agency, or the lender the data refers to asking for it to be amended. You may be required to submit some supporting evidence to back up your claim.

If your amendment is agreed by the reference agency, they will edit your file and the amended entry is supposed to be sent to any lender who undertook a credit search on your file within the previous 28 days.

You won’t be able to change the lending criteria used by the company who scored you, but you can avoid your credit score being unfairly punished by a false low score.

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I would like to take with you each credit card is the chance to have a permanent work downloading the Child Tax Credit and Working Tax Credit lolo - 23-Sep-15 @ 2:30 PM
lolo - 23-Sep-15 @ 2:32 PM
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