Regardless of whether they are specialist or high street, the vast majority of lenders these days will use credit checks, accessed through the UK’s two largest credit agencies – Experian and Equifax.
These checks provide a wide range of financial information and highlight areas of previous difficulty, such as defaults or county court judgements, as well as missed payments on credit arrangements. Although mortgage introducers should always advise their clients to be honest about their circumstances when they apply for a loan, it is surprising how many cases of dishonesty slip through the net and land on the desk of an underwriter.
If there have been problems in the past, it is better to be open at the time of application, and make sure that any proof of payments is available to back up an explanation of the circumstances. If it is not clear a problem exists, but the applicant suspects it might, they can apply to the credit agency for a copy of any existing files. The worst thing a client can do is not disclose a problem as it will be picked up during the course of a credit check. Supplying false information is fraud. Lenders belonging to organisations like the Credit Industry Fraud Avoidance System (CIFAS) are compelled to circulate details of applicants who submit fraudulent applications.
Some lenders also use a credit score. This is a statistical predictive tool based on past experience and is the principal method by which most loan and credit card companies make their decisions. Essentially, applicants have to ‘clock-up’ sufficient points against a pre-determined set of criteria to qualify for the loan. Points will be gained or lost according to such things as previous credit history, occupation and current property status.
Some credit scores will only allow cases with sufficient points, often discriminating against people with no credit history because they have no track record. Others ‘know’ the lender’s policy as well as the credit criteria. But although efficient for the lender, this is not very personal for the borrower.
The best option is therefore possibly the credit score that acts only as a guide to the lender. This can assist the lender by highlighting the likely risk category of the applicant, enabling them to concentrate on cases requiring more evidence of the applicant’s financial history. Traditionally, lenders have relied on references to provide other information. These are usually requested from employers, previous lenders, landlords, or sometimes the individual’s bank. References, however, can be problematic because there are often associated delays and fees.
To overcome this problem, some lenders are now accepting documentation that can be easily supplied. Lenders can request as little as three months’ bank statements, the latest pay slip and a P60. This results in a quicker and more efficient service. Even lenders who are not yet able to use this simplistic method will often request the same information as backup for references and evidence of credit-worthiness. Underpinned by a credit check, and possibly a credit score, the lender can have confidence in the decision made on whether to lend or not.