If you get turned down when applying for credit it can be frustrating and you’ll probably think that there is a mistake on your credit file. In fact, most people are refused credit because their identity cannot be verified, says Equifax the credit reference agency.
Most lenders – banks, building societies, credit card companies, mortgage lenders and shops – make a decision on whether or not to give you credit on the basis of information supplied by one of the two credit agencies – Experian and Equifax.
These firms get their information from sources such as the electoral roll and lenders. Your file will show your address, which companies you have borrowed money from in the past and how effectively debts have been paid, or if you have any County Court Judgements (CCJs). Every credit deal you apply for will show up on your file as a ‘footprint’.
There is no such thing as a credit blacklist and Experian and Equifax do not turn down your request. It’s up to the lender to make the decision based on the information they have.
You can’t be turned down for credit if the previous occupants of your home had debts either. “The law and third-party data has changed” explains Neil Munroe, external affairs director of credit rating agency Equifax. “An address doesn’t hold the debt, it’s the individual who will have a bad record.”
Why have you been turned down?
The most common reasons for refusal, according to Equifax are:
- Not giving the right address. Address data used by credit reference agencies is taken from the electoral roll, so if the address you give doesn’t match the one of the electoral roll, you may get turned down. It could be something simple like using a house name, that isn’t on the electoral roll.
- Not being registered on the electoral roll. If you have recently moved house you may not yet be registered on the electoral roll. Lenders use this as a way to verify your identity.
- Shopping around for credit. A high number of credit searches on a credit file can ring warning bells for lenders, because it could mean you are over-committing yourself or that your identity is being used fraudulently. So if you change credit cards to keep up with 0 per cent deals, then you could find this affects your future borrowing.
- If you are enquiring about rates or deals on offer, a record of this shouldn’t appear on your credit file. But if the interest rate being offered depends on your credit score then the lender will need to search your file. This should be logged as a quotation search and not a credit search, so shouldn’t affect you.
- Past debts. Late payments on a credit account will show up on your credit file if they were frequent and will have a negative affect on your ability to gain credit. Even if the debts have been settled, the information will stay on your file for up to six years. You can ask for a ‘notice of correction’ to be placed on your file. This will give you the opportunity to explain why the debt occurred.
- Association with somebody who has debts. If you have been financially associated with somebody who has had debt problems, then this could affect your ability to get credit. If this is the case you can as the credit agencies to put a notice of disassociation on your credit file.
- County Court Judgements (CCJs). If you have one of these on your file it will reduce your chance of being given credit. If the CCJ has been paid within one month from the date it was issued then it shouldn’t appear on your file.
What to do if it happens to you?
The first thing to do is to get a copy of your credit file. Ask which company the lender used to check your details.
Both Experian and Equifax will send you a copy of your credit report for £2. You can obtain a copy online too, but will have to pay more.
You can ask for your credit file to be amended if the details are wrong and then appeal against the decision to turn you down for credit.