Each year, thousands of applications for loans, mortgages, credit cards, or hire purchase are rejected, following a credit reference check by the service supplier.
In lots of cases, the decision to turn down a request appears incomprehensible: the individual concerned may well have a perfect debt repayment record. Or they may already own several credit cards, none of which are up to their spending limit and on which balances are faithfully paid in full every month.
Credit Rating – How does it Work?
There are mainly two credit reference agencies in the United Kingdom which carry out this activity: Nottingham-based Experian, and Equifax, in Glasgow. Between them, they carry details on 44 million people in the UK. Their data banks include details about your family, credit cards, mortgages, and information on any unpaid bills, failure to pay hire-purchase debts, or County Court judgements (known as CCJs) against you – although they will not appear if paid off within one month. If paid off later, the file can be marked “satisfied” but the information will be on file for six years.
Credit reference agencies will look at the electoral roll for your address to see how long you have lived there, plus the financial details of every adult with the same surname at that address.
Other available information, supplied by organisations with whom you have financial dealings, details how you handle the credit accounts you already have. It is updated monthly to show whether you keep payments up to date. There will also be a record of enquiries made on your name over the past few years, not all of these for lending purposes.
The presence of multiple enquiries, or “footprints” against your name, irrespective of whether a loan or a card application was actually proceeded with, can sometimes be taken to indicate that the individual concerned is a potential “bad risk”.
Checking the Accuracy of Your Credit Rating
Given the multiplicity of these sources of information, it would be rare if a mistake were not made. Equifax, however, claims that out of the 650,000 requests it receives annually from people who wish to see their files, out of 65 million reference requests each year, fewer than one per cent find any inaccuracies.
Inaccurate details-or, better put, details that are no longer accurate-are a major reason why people can be refused credit. So how can you make sure that the information kept on your file is accurate?
Everyone has statutory rights in this regard. These statutory rights were formerly enforced by the Office of Fair Trading (OFT), but a change in law means that responsibility is passing to the Information Commissioner.