Credit Decisions Explained

Document Sample
Credit Decisions Explained Powered By Docstoc
					Credit Decisions
If the thought of credit has got you
into a tangle, this leaflet will soon
straighten you out. Read on for the     Contents
ins and outs of what happens when
you apply for your Barclaycard.
                                        Section 1                                                      Page 2

                                        What is credit scoring?
                                        Why does Barclaycard use Credit Scoring?
                                        What information do you check?
                                        What happens if you turn down my application?

                                        Section 2                                                      Page 3

                                        How do I get a copy of my credit reference report?

                                        Section 3                                                      Page 3

                                        What information is on my credit reference report?
                                        How long does information stay on my credit report?
                                        Some of the information on my credit report is wrong. What can I do?

                                        Section 4                                                      Page 5

                                        How to improve the information in your credit report

                                        Section 5                                                      Page 6

                                        Credit report myths addressed

                                        Section 6                                                      Page 6

                                        Difficulties with repayments? We can help

Section 1

What is credit scoring?
When you apply for a Barclaycard, the first thing we’ll do is work out your credit score. This system is used by most major
banks, credit card and finance companies.

For customers, we may also use credit scoring to help us to manage your account, for example so that we continue to offer
you a credit limit which we believe to be appropriate.

Why does Barclaycard use credit scoring?
No matter how responsible the customer, each time we lend money, we are taking a risk in whether it will be paid back. Credit
scoring helps us to work out the level of risk for each applicant based on the information we have. In simple terms, it helps us
to decide whether to accept your credit card application, how much to let you borrow and at what interest rate.

The scoring system provides a consistent means of assessing applications, so you can be sure that yours will be treated fairly.
We test our systems regularly to make certain that they are unbiased. However, lenders are not expected to give details of
how credit scoring works, as it is recognised that this could jeopardise the integrity and/or security of the scorecards, as well as
increasing the risk of fraud.

Credit scoring sounds intimidating, but it’s designed to protect you as well as us. We wouldn’t be acting responsibly if we lent
more than you could afford to repay. That’s why the Office of Fair Trading, which regulates credit, considers credit scoring to
be an aid to responsible lending.

What information do you check?
We look at three kinds of information: what you have provided on your application form, what we may already hold about you
and what we may obtain from other organisations such as credit reference or fraud prevention agencies. If we contact other
organisations, we’ll tell you who they are.

Each piece of relevant information is given points which add up to produce a score.

If your score reaches a certain level, this means that your application falls within the level of acceptable risk. Provided that you
have met our policy rules, we will usually accept your application.

If your score doesn’t reach this level, we may not accept it. Should this happen, details of our decision are not shared with
credit reference agencies.

What happens if you turn down my application?
The first thing to know is that being turned down by us doesn’t mean you are a bad payer. All it means is that, based on the
information available to us, we are not prepared to take the risk of granting the credit requested. Each lender applies its own
policies and scoring systems, so even if we have rejected you, another organisation may accept your application (and vice

We will give you the main reason why you have not met our lending criteria. For example:

• You may not have passed our credit score

• One or more of the credit reference agencies may have had information about you that has influenced our decision

• You may not have met one of our conditions (for instance, we will not lend money if your level of income suggests you may
  have difficulty paying us back).

You can ask us reconsider. In this case, we will generally ask you to provide us with extra information. If your score doesn’t
reach this level, we may not accept it. Should this happen, details of our decision are not shared with credit reference

Section 2

How do I get a copy of my credit reference report?
The idea of credit reference agencies holding data about you may sound sinister, but you can check this information at any
time by contacting them yourself. Write, phone or access their websites as below:

Experian Ltd                    Equifax plc                       Callcredit plc
Consumer Help Service           Credit File Advice Centre         Consumer Services Team
PO Box 8000                     PO Box 1140                       PO Box 491
Nottingham                      Bradford                          Leeds
NG80 7WF                        BD1 5USv                          L51 5XX

Tel. 0870 241 6212              Tel. 0870 010 0583                Tel. 0870 060 1414           

To request a copy in writing you must include:
• The agency’s fee of £2 (by cheque or Postal Order)
• Your full name(s) including any alias or other names i.e. maiden name
• Your date of birth
• Your address, including postcode, and any other addresses you have lived at during the past six years.

The credit reference agencies will provide your credit report within 7 working days, following the receipt of your request and
the fee.

Sometimes the credit reference agency will not send out your report until they have obtained more information from you, for
example a proof of name and address from a utility bill or bank statement. This is simply to ensure that nobody else receives
your report.

Section 3

What information is on my credit reference report?
Credit reference agencies supply factual information to financial institutions for three main reasons: to assist with lending
decisions, to confirm customers’ address details and, where applicable, to prevent fraud.

The information on your report includes:

Your Electoral Register details
The Electoral Register lists the name and address of everyone who has registered to vote. Organisations use the electoral roll
to confirm your name and address. This process helps to prevent fraud, in particular money laundering.

Public information
Court information is obtained from Registry Trust Ltd, an independent organisation set up under the control of the
Department for Constitutional Affairs. If you have ever been taken to court for not paying back a debt, this will show on your
report as a court judgment (CCJ). However, provided that you pay the judgment within one month, it will be removed from your
credit report.

Bankruptcy information is obtained from the Insolvency service. If the bankruptcy order ends, the Insolvency service should
advise the credit reference agencies. You can also send the credit reference agencies a copy of the discharge certificate or
letter from the official receiver and they will update their records accordingly. If the record has not been updated, you should
contact the court concerned. You can ask the court for a certificate of satisfaction as proof of payment (there is a fee for this).

Individual Voluntary Arrangement (IVA) - agreements with creditors, through the court, to pay an agreed amount off your debts
over a shorter period.

Credit account information
Major lenders share details of their customers’ credit agreements with credit reference agencies. Lenders like to look at this
information when considering a new application for borrowing because it shows how you have repaid previous or existing
credit commitments. This helps them to decide whether you can afford to take on the new credit.

Credit account information belongs to the lender that filed the information and credit reference agencies cannot change these
details without the lender’s permission. Each month, lenders provide details of any changes to the credit account information.

Previous search information
This is a record of organisations which have searched your report to check your identity or to assess your application for credit

Linked addresses
A linked address enables lenders to track your account when it moves between addresses, such as when you move house.

CIFAS is the UK’s Fraud Prevention Service. If a lender detects a real or attempted fraud, it may place a CIFAS marker on
your credit reference report to warn future lenders and protect innocent customers.

GAIN (Gone Away Information Network)
This service enables lenders to pass information on to the credit reference agencies when customers haven’t kept their ac-
count repayments up to date and then move without giving notice of their new address.

Council of Mortgage Lenders’ repossession register
The CML keeps a register of people who have had a property repossessed or have given it up voluntarily. Only CML members
are permitted to see this information.

Alias / Association information
“Alias” might make you think of spy thrillers, and indeed this is a list of any other names the customer has used in the past -
including those adopted to conceal one’s identity. However, you might have a record on your report for more innocent reasons
- for example, a married woman may have her maiden name listed.

If you are/have been married or ‘financially linked’ to another person for any other reason that entails sharing a joint account
or making a joint application, there is something else you need to be aware of. The details of the person(s) you are financially
connected to, the name of the organisation which created the link and the date the link was created will appear on your credit
report. This means that any application you make may be assessed with reference to these “associated” records.

The financial information about any associates will not appear on your credit report, so they will need to apply for their credit
report separately.

If you are no longer financially connected to another person(s), you can write to the credit reference agencies to explain the
situation and they can remove any link. This is called a disassociation. The contact details of the credit reference agencies
can be found in section 2.

Notice of Correction
This is a statement of up to 200 words written by the individual that explains why they think an entry on their credit file is
wrong, or perhaps the circumstances surrounding the debt. The individual can also write a statement if the information is factu-
ally correct but they think it creates a misleading impression.

Here’s an example:

“I Mr Anthony Person of [address], would like it to be known that the Judgment recorded against me for [amount £’s] relates to
a bill which I could not pay because I was made redundant. I paid the bill in full after I got a job. I would ask anyone searching
this file to take these facts into account”.

How long does information stay on my credit report?
Electoral Roll information is held indefinitely.

Public Information i.e. CCJs, bankruptices, IVAs, Administration Orders etc. are held for six years from the date they begin,
unless set aside or recalled by the courts.

Credit account information is held for the lifetime of the account and then for a further six years from the date the account
was settled or closed.

A defaulted account will remain on your credit report for six years from the date of the default. When the debt is repaid, the
entry on your credit report should be marked as settled or satisfied.
A defaulted account will remain on your credit report for six years from the date of the default. When the debt is repaid, the
entry on your credit report should be marked as settled or satisfied.

Search information is held for 12 months at Experian and Equifax and for 24 months at Callcredit.

Some of the information on my credit report is wrong. What can I do?
If your query is about a CCJ, Admin Order or decree and is not about full repayment of the debt, contact the court for help.
The entry in your credit report will give the name of the court, the relevant date and the case number.

If your query is about the Electoral Register, contact the local authority for the address concerned.

If your query is about other credit information, you should write to the lender detailing your full name, address, any relevant
account or reference number and explain what information you think is wrong and why. The lender details will be provided on
your credit report.

Remember - keep a copy of any letters you send.

Section 4

Being rejected is never easy…
It doesn’t matter how old you are, you never get used to being turned down. A rejected credit application can blow a hole
through your financial plans. It’s also rather unsettling.

But you’re not helpless. If you’ve been rejected recently, there’s a lot you can do to improve your chances next time.

How to improve the information in your credit report
Show you’re up for commitment: keep up-to-date with existing credit. Pay your existing credit card bills and loan repay-
ments on time - it will show you’re likely to be able to meet future credit payments.

Take it slow: be patient, not persistent. If you’re refused credit for a product or service, don’t keep on reapplying as this may
lower your score still further. Wait a few months before making further applications.

Show your face about town: get yourself on the electoral register. Banks, credit card, finance companies and retailers
carry out this standard check to ensure you are/have been registered at the address(es) you provide.

Don’t be vague about where you’ve been… If you’ve moved a lot in the last three years, don’t be tempted to leave out any
previous addresses. This could be viewed as a deliberate attempt to conceal unpaid credit at that address.

…or what you’ve been up to. Missed repayments or CCJs (County Court Judgments) can be very easily traced. So if you’ve
experienced these kinds of difficulties in the past, be upfront about them.

Keen to settle down? Settle bad debts first. Although unpaid credit and CCJ’s will remain on your file for six years, they will
be marked as settled once you pay the debt. This could be taken into account when you’re making future applications.

Check your report and dispute any inaccuracies. Everyone is entitled to see their credit report. If you can see no good
reason why you should be refused credit, it’s a good idea to get hold of yours - ask a credit reference agency for a copy. This
will show you all the information about you that lenders and retailers can see.

Check all the details carefully. If you find any errors, you can appeal to the agency or to the lender. You can also add a Notice
of Correction (see previous page) to explain any special circumstances.

Section 5

Credit report myths addressed
Start a conversation about credit reference agencies and you’ll hear some alarming things. They can blacklist you. They know
all about your medical history. They can see through walls (almost). Let us put your mind to rest.

Do credit reference agencies hold a blacklist of people or properties? There’s actually no such thing as a credit blacklist.
Each lender applies its own policies when considering an application for credit.

As you’ve seen, credit reference agencies do provide financial organisations with detailed information to help them with
lending decisions, but this is strictly factual. They don’t give an opinion on an individual’s financial status.

Can information about the previous occupants of my home affect my creditworthiness? Ah, yes. A friend of a friend
who has never been in debt in his/her life had their credit card application refused the other day because the people who
previously owned their house ran up an enormous bill and then left without paying.

Nice dramatic story, but it could not happen. Lenders conduct credit checks on people, not addresses - and they must obtain
your consent first. The information they retrieve will relate only to you and anyone with whom you’re financially linked. Any data
about previous occupants will have no bearing on your creditworthiness.

Will adverse information in my name affect the rest of my household? No it won’t. Your credit information/history has no
bearing on anyone else’s, regardless of whether they live with you or not, unless you share your finances (for example, you
have a joint loan, bank account or mortgage). If someone living with you has their own finances, lenders won’t be able to see
information about you when they apply for credit.

Do credit reports show when credit has been refused? A search ‘footprint’ will show the date of the credit check, the name
of the organisation that you applied to and the type of credit you applied for, but not whether your application was granted or
declined. The mere fact that you have been declined credit cannot be recorded on your credit report.

Do credit reports include information about things like employment & medical records? The most inventive myths
involve credit references pulling together all kinds of sensitive information about you, for example your race, religion, sexuality,
political beliefs, employment details, medical history, Council Tax payments or criminal records. This is not true. Nor do they
hold information about savings accounts, other investments or insurance policies.

Section 6

Difficulties with repayments?
Life doesn’t always run as smoothly as it’s meant to. Perhaps you’ve had a run of bad luck, or a sudden unexpected expense
through no fault of your own. Or perhaps you just overestimated how much money you had to play with.

Either way, if you’re struggling to pay your monthly Barclaycard bill, there’s two things you can do right now:



Do this as soon as you can. We want to help, but it will be much easier to resolve the problem if you tell us as soon as you get
into difficulties. We’ll work out a reasonable repayment plan.

If you feel as if you’re out of your depth and you want more help, don’t be tempted to use a debt management company. Some
may charge you a fee, which will mean you’ll end up owing even more. There are plenty of reputable organisations who will
give you impartial free advice in calculating a realistic repayment offer and planning your budget:

Citizens Advice Bureau (CAB). The CAB has trained specialist advisers who will be able to help you to reorganise your
finances and deal with creditors. To find your nearest CAB, check your local phone book or look in the Yellow Pages under
“Counselling and advice”. Alternatively visit the CAB website at

Consumer Credit Counselling Service (CCCS). CCCS is a registered charity that provides counselling to people in financial
difficulty. Call 0800 138 1111 or visit for further information.

Payplan. Payplan provides expert advice on dealing with debts. You can call Payplan on 0800 917 7823 or visit their website

Advice UK. Find your nearest information and advice centre at or call 020 7407 4070.

You’ll find further independent guidance at the Financial Services Authority’s (FSA) website,