PERSONAL FINANCE – Know your score

You are about to buy the expensive, state-of-the-art TV or hi-fi you well to check out what’s on your files at the UK’s credit reference agencies. have always wanted and are attracted by the interest-free deal on offer. You fill in the form and wait to carry away the box. Suddenly, an embarrassed store assistant comes up: ‘I’m sorry, your application for credit has been rejected.’

Each year, hundreds of thousands of people’s applications for loans, mortgages, credit cards or hire-purchase agreements are rejected following a credit-rating request by the service supplier.

In many cases, the decision to turn down a request for credit appears incomprehensible. The individual may have a perfect debt repayment record and previous applications have sailed through.

So how does credit rating work? There are two main credit reference agencies in the UK: Nottingham-based Experian, and Equifax, in Glasgow. Between them, they carry files on 44 million people, every adult in the UK.

But as Jill Stevens, consumer relations director at Experian, points out: ‘We do not make lending decisions at all. They are made by individual lenders who all have their own criteria, based on their own customer profiles and what kinds of products they are marketing. In fact, we would argue that the information we hold actually helps people obtain credit.’

Even so, those decisions are based on the reference agencies’ data. This includes details of your family, credit cards, mortgages, wages, bank accounts, 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 within one month.

Credit reference agencies will also 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. Previous inhabitants at the same address will also be in the file, plus their details.

Other information, supplied by organisations with whom you have financial dealings, details how you handle the credit accounts you already have.

It is updated monthly.

Stevens says: ‘People are shocked by how much information we have. But when they see it, they often want us to have more. They feel we do not have enough information on them.’

Somewhat bizarrely, the presence of multiple enquiries, or ‘footprints’ as they are known, against your own name – irrespective of whether a loan or application for a credit card went ahead – can sometimes be taken to indicate that the individual concerned is a potential ‘bad risk’.

Given the multiplicity of these sources of information, it would be surprising if mistakes were not made. Equifax, however, claims that out of 65 million reference requests, it receives ‘just’ 650,000 demands each year from people wishing to see their files. Less than 1% of these people find any inaccuracies.

Be that as it may, inaccurate details – or, better put, details that are no longer accurate – are a major reason for credit refusals. So how can you make sure that the information kept on your file is accurate’

When the Data Protection Act comes fully into force from October 2001, individuals will have the right to see all information about themselves, whether on computer or not, and to have incorrect records amended.

But under the Consumer Credit Act 1974, it is already possible to ensure that credit-linked information is accurate. Anyone refused credit for £25,000 or less may write within 28 days to whoever has refused, asking the reason why and the name of any credit reference agency consulted.

While it is not mandatory to give a reason for a credit refusal, the name and address of any agency that has been used must be supplied within seven working days.

Both Equifax and Experian will supply you with all details on your file, as long as you send them a cheque or standing order for #2, a fee determined by the Office of Fair Trading, plus your full name and current address.

If you have lived there for less than six years, include all your addresses over that period.

Among the most common problems is one where two people with the same surname but different credit records – for example, a father and son – live at the same address.

Roddy Kohn, a Bristol-based independent financial adviser, says: ‘Lenders assume that everyone living in a household, or even people who have lived there in the past, are financially connected or dependent.’ If you can show that your finances are not connected to the other person or people in question then you can ask for a “disassociation” to be placed on your file. You will need to give the full names and addresses of those involved and the nature of the relationship you have with the people you want to be disassociated from.

Jill Stevens of Experian explains: ‘When you provide us with a disassociation letter, it breaks totally any link between yourself and any similarly named relations. Their names are removed from your file instantly. For this to happen, the relationship must not exist at your end.’

If the information is wrong it should be removed from the file. In other cases, you can provide a 200-word statement, called a ‘notice of correction’, that is added to your file.

For example, if you had a CCJ issued while working abroad, you could explain this in the notice.

Reference agencies must use the corrections in future and send copies to anyone who has asked for information about you during the past six months.

It is better if the mistake’s originator corrects it with the agency, and sends you written confirmation. If you wish make the correction yourself, you will need to offer proof that an error has been made in your file before it is changed.

If a CCJ has been issued, it is possible to obtain a ‘certificate of satisfaction’ on payment of the bill – although the judgment remains on the credit file for six years.

If the CCJ has been put on erroneously, then you must go back to the firm that originally brought the CCJ and ask for a ‘certificate of cancellation’.

When this is done, the certificate goes back through the Registry Trust, part of the Lord Chancellor’s department, and is sent to the credit reference agencies which will remove it from their files.

A CCJ can also be removed via a certificate of cancellation (or proof of payment in Scotland) if the debt is paid within one month. But the information will be on file for six years.

There are a number of firms that promise to ensure ‘cancellation’ of CCJs from files, for payments of between £50 and £100. In nearly all cases, this is a waste of money for something which you can do quite easily yourself.

Stevens says: ‘We are very concerned by many of these firms. What concerns me is the way they promise to do something which they simply can’t, like entering into our data system and altering the information in it. That is just impossible.’

Even if you succeed in correcting any errors and omissions in your files and disassociate yourself from others with a bad credit history, this does not automatically mean you will obtain credit.

This is because most companies will put your financial details through their own credit ‘league table’.

Kohn explains: ‘Generally, people who own or are buying their home score higher than those who rent. And living at the same address for years is much better than moving around.

‘Being married, having a credit card and having held the same job for several years are all likely to earn you high points. Age is also important.

Generally, the older you are, the more the lender likes it.

‘It would be fair to say that things are a bit antiquated. Fewer and fewer people are married nowadays and fewer people stick with the same job.

My advice to people who genuinely feel they are credit-worthy is first to assume that a mistake has been made and apply elsewhere. But if it happens again they should start checking their files and correcting them where necessary.’

Useful addresses and telephone numbers

– For copies of your credit file, write to: Experian, Consumer Help Service, PO Box 8000, Nottingham NG1 5GX. A recorded message on 0115 976 8747 explains how to obtain a copy of a credit file from Experian. Its consumer help department, on 0115 958 1111, can answer queries.

– Equifax, Department 1E, PO Box 3001, Glasgow G81 2DT. Its consumer helpline is: 0990 143700.

– The OFT publishes a free booklet, No Credit, with useful background information (call 0870 606 0321 or write to the OFT at PO Box 366, Hayes UB3 1XB for details).

– The Data Protection Registrar information line: 01625 545745.

– Consumer Credit Counselling: 0800 138 1111.

– National Debtline: 0121 359 8501.

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