SPECIAL INVESTIGATION: The credit scoring spies are watching

| August 8, 2012 | 0 Comments

By
Ruth Lythe

19:02 EST, 7 August 2012


|

19:25 EST, 7 August 2012

Credit records: Information can be wrong and mistakes can prove devastating

Credit records: Information can be wrong and mistakes can prove devastating

Every day, thousands of Britons are turned down for loans and mortgages on the basis of the records held on them by the three big credit agencies.

Often these rejections are for genuine reasons, such as missed payments following a job loss.

But others are made because information held by the agencies is simply wrong.

Figures from consumer watchdog the Financial Ombudsman Service reveal a 74 pc jump in the number of complaints about the agencies and lenders over the past year.

These mistakes can have a devastating effect.

People turned down for mortgages lose their dream homes or cannot get cheap loans or credit cards for years.
They are then forced to get more costly credit elsewhere, paying more
in charges and interest — and putting themselves in a more precarious
financial position.

Yet the agencies and lenders who make these errors rarely have to answer for them.

Instead, it’s left to their victims
to resolve the situation, and struggle with endless phone calls and
forms to convince lenders that they are worth lending to.

Here’s our guide to keeping tabs on those who are supposed to be monitoring on you.

WHO ARE THEY AND DO THEY MATTER?

You might not realise it, but every
penny you spend on your credit card; all direct debits; bank account
payments; personal loan repayments; gas and mobile phone bills; and any
mortgage you apply for is being monitored.

Those watching you are Britain’s three main credit agencies: Experian, Equifax and Callcredit.

These multi-billion-pound companies hold vast power over our lives by showing how well — or badly — you manage credit.

The agencies simply score you, and
give this rating to lenders who then use this as part of their own
decisions about whether you are a good or bad risk to lend money to.

Whether you succeed depends on the information contained in your credit report, which stretches back six years.

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Pamela Baker of Bebbington

Pamela Baker of Bebbington

‘I was wrongly hounded’

Pamela Baker, from Bebington, Wirral, was chased by debt collectors for years for £600 of debts owned to phone company 3.

Yet the 64-year-old (left) has never  owned a phone with the company.

In fact, it emerged that another woman of the same name — but 30 years younger and living in Belfast, N. Ireland — was incorrectly added to her address by Experian.

The agency says that once it was alerted to the problem, it amended the record quickly.

They believe she was a victim of identity fraud. She says: ‘Once a credit agency has decided who you are, it’s almost impossible to prove you are not the person they are looking for and clear your name.’

Nearly 400 million transactions a
month are tracked, including missed payments and defaults — where you’ve
missed a series of monthly dues — as well as logging indicators of how
you generally handle your money.
Miss
a credit card payment, take out a payday loan, or fail to appear on the
electoral roll and your credit score will take a hammering.

Critics argue the credit reference agencies don’t act fairly. They say the role of the agencies should be to prevent irresponsible lending — not to punish those who make simple mistakes.

Marc Gander, founder of the campaign
organisation Consumer Action Group, says: ‘People who forget about a £20
card payment because they’ve moved home or have had a family drama are
being treated worse than criminals by these firms.

‘You may pay the money off as soon as you realise you’ve missed it, but by then it’s too late and your credit file is blighted. It all means that for six years you could struggle to get a mortgage, take out a loan or get credit.’

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Josephine Lawes from Halesworth, Suffolk

Josephine Lawes from Halesworth, Suffolk

‘My credit limit was cut’

Josephine Lawes, 59, believes her credit record suffered after she was refused a store card.

Mrs Lawes, from Halesworth, West Sussex held a Debenhams card with her husband David.

But she was told she would have to reapply following his death last year.

When she tried, she was turned down because her name was already on the system.

Shortly afterwards her bank, Halifax, slashed the limit on her credit card from £1500 to £800.

When Mrs Lawes asked why she was told to check her credit record.

Santander, which runs the Debenhams store card, says it has apologised to Mrs Lawes and amended her credit record.

WHAT DETAILS DO THEY HOLD ON YOU?

The idea is to build as wide a
picture of your ability to run your finances as possible as a help to
lenders. In essence, your credit record is made up of three key
elements. Electoral register information is publicly available and
contains your name and address.

Court rulings such as county court judgments and bankruptcies are also logged into the system.

The key part for most, though, is details of how you have managed credit in the past.This
gives lenders a treasure trove of information they can use to work out
if they want you as a customer whenever you apply for credit such as a
personal loan.

Lenders will be able to see not just
whether you have paid off your credit card bill, but how much of it you
typically pay each month. Each lender will then be able to better decide if they can make money from you.

For example, pay just the minimum
amount on your credit card bill each month and some lenders may view you
as being barely able to cope with your debts — and turn you down.

Yet others might see you as a
lucrative prospect because you will take longer to pay off your balance
and so rack up lots of interest — and welcome you with open arms. Your record also lists if you have taken part in special offers — for example 0 pc interest balance transfer cards.
In
this case, lenders might steer clear of people who constantly shift
their card balance on to a series of interest free cards, concerned they
are simply playing the system — and that they won’t be able to make a
profit from them.

And if you’re a very good manager of
your money, always meeting payment deadlines and managing credit
expertly, some lenders will decide to offer you credit on generous terms
in the hope you will be tempted to take out a loan or a current account
with them in future.

The agencies also hold details of any
previous applications for credit cards and loans. Make lots of
applications within a short amount of time, perhaps to find the best
rate you qualify for, and it could set off alarm bells with lenders. Credit reference agencies are also branching out into new areas.Increasingly, they record details of gas, electricity and water payments.

Equifax and Callcredit now also log information on payday loans, and Experian is to do so shortly. The three agencies also keep information on around 250,000 student loans issued before 1998. Although they cannot include this debt in your credit score, lenders will still be able to see them.
And from the end of this year, Experian will also start holding data on people who are renting.

WHY IS IT VITAL TO CHECK MY FILE?

Money Mail has seen a rise in the
number of letters from readers who are turned down for credit, despite
never having missed a payment and staying on the list of voters.

A recent survey by consumer group
Which? found a quarter of its sample had found an error in their credit
record when they checked. They can languish undiscovered for months
because not all lenders look unfavourably on small discrepancies, for
example.

But when discovered, errors can take
months and dozens of costly phone calls to resolve, so it’s important
not to leave checking your file until you get turned down for a mortgage
or loan.
And it’s more vital now than ever before to check your record.

Last month’s high-profile IT
meltdowns at RBS and building society Nationwide led to millions of
victims being pushed over their overdrafts or missing card payments. Both banks have recommended people to scan their credit records to make sure they have not been affected by the interruption. RBS will refund your £2 credit report, and its account holders can get a check with Experian free.

You are legally entitled to a copy of your credit record by writing to the agency with a £2 payment.
You
can get hold of this by writing to the agency and in the case of
Callcredit, you can also view it online. For Equifax, contact Equifax
Ltd, Credit File Advice Centre, PO Box 1140, Bradford, BD1 5US, or call
0844 335 0550 or go to equifax.co.uk.

For Callcredit, write to Callcredit
Plc, Consumer Services Team, PO Box 491, Leeds, LS3 1WZ or call 0870 060
1414 or go to callcredit.co.uk.

For Experian write to Experian Ltd,
Customer Support Centre, PO Box 8000, Nottingham, NG80 7WF, or call 0844
481 8000 or visit experian.co.uk.

WHAT CAN YOU DO IF THERE’S A MISTAKE?

If you find an error and believe the credit agency or lender is to blame, then you should write to or call them immediately.

By law, the agency must reply to any
query about data that is wrong on their account within 28 days.  They
can do this by inserting a ‘note’ on your file — an electronic tag —
that all lenders can see.
The agency should also mark any data being disputed as ‘unreliable’ while it investigates.

It should also inform you if it needs
to contact another organisation, such as your bank. If the lender
disputes the error then you will be left to argue with it yourself. If you are unhappy with the result, you have the right to add a 200-word note of explanation to your file.

However, lenders do not always pay
attention to notes, and can ignore them. Richard Arden was forced to
find tens of thousands of pounds or face losing his dream home because
his lender ignored a note that had been added to his credit record.

Mr Arden, 32, from Newcastle, had moved to a new area and wanted to buy a new home.
He not yet on the list of electors and so rang the local council to update his status. Because
Mr Arden’s council — like all of them — has its own resident update
schedules, it will not add him to its published records until later this
year. To reassure lenders, Equifax put a note on his credit file to explain what was happening. However, his mortgage lender decided to ignore it altogether.
Instead, it demanded a larger 25 pc deposit to buy the house, rather
than 10 pc originally agreed, before it would give him a loan.

Mr Arden says: ‘My circumstance is
very common, where an electoral list entry won’t show due to a council
not publishing the list due to canvassing, and yet this sort of disaster
can easily still happen.’

Equifax says the problem is down to councils amending their registers later in the year.
If you think you’ve been wronged by a lender or agency and can’t
resolve it, complain to industry watchdog the Financial Ombudsman
Service  by calling  0800 023 4567 or go to financial-ombudsman.org.uk

IS SOMEONE I LIVE WITH TO BLAME?

The credit reference agencies can
also register information on your file about other people listed to vote
at your address, or details of someone you are linked to financially —
for example your spouse or a business partner.

This means that, despite having a perfect record, you can be turned down if they have run into money trouble in the past.

Frustratingly, if you end up being
turned down for credit because of someone else’s misdemeanours, there is
very little you can do.

You can ask the person to re-check their own records but if they refuse, you do not have a right to force them to do this.

DO AGENCIES SELL MY DATA ON?

Credit reference agencies are always on the lookout for new ways to make cash to boost their profits.
Although you can check your record for just £2, all of the agencies now run a subscription service.
They lure you into paying up to £15 a month to check your report with the promise of a free credit check

This is only free if you cancel the deal within 30 days.

This can be a double money spinner for the agencies because they can then also sell your data on to a lucrative marketing list.

These lists can allow companies to target you because they know all about your spending habits.
However,
you can easily stop your details being used like this by unticking the
box in the small-print promising to put you in touch with extra offers.

HOW DO I IMPROVE MY CREDIT RECORD?

A good job and salary alone are not enough to ensure you are accepted by lenders.

According to comparison site Freedom
Finance, a third of people turned down for headline loan rates have been
in their jobs for more than ten years and earn more than £30,000 a
year.

In fact, lenders use their own secret methods to rate your likely behaviour before deciding whether to give you a loan or card.

However, if you’re rejected by everyone, it’s probably your credit record that is to blame.
You credit history will stay on your card for six years, but lenders may look more kindly on missed payments from further back.

You can also improve your record by sticking to three golden rules.

Get on to the electoral register in your area — this is the first key to a good credit rating.

Second, make every payment due on your present card in full and promptly.

Finally, try to space out credit
applications. For instance, wait a few months between applying for
mobile phone contracts, car insurance or credit cards.

Lots of applications made in a short
amount of time can send signals to lenders suggesting that you have run
into money problems.

Here’s what other readers have said. Why not add your thoughts,
or debate this issue live on our message boards.

The comments below have not been moderated.

Many lenders today would rather lend to someone who does NOT pay off their credit like an expert every month. These “mugs” are the bread-and-butter of the entire credit industry!
Someone who never actually pays interest on the other hand, is considered “rubbish” by the same rating system.
The data at Experian and other data mining firms might be the same, but the way lenders interpret it differs greatly from one place to another.
If a credit reference firm marks someone down too harshly after they lose their job for example, then there’s nothing to stop that jobless individual kicking their entire unsecured debt “portfolio” into touch, and defaulting.
No court in the land awards payments to lenders out of a borrower’s jobless benefits considered below the cost of living,.This amount is currently considered to be a household income of about £500 per month.
More of the jobless indebted should consider such perfectly legal action, known as “strategic default”.

The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline.

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