What is the role of a credit-rating agency within the mortgage process?
Our role is to collect information from various sources to help lenders make informed lending decisions. Many use credit scoring to assess mortgage applications, which often includes the information we provide as well as the information the applicant gives on their application form.
Are lenders still using credit scoring as heavily as they used to?
The trend is for more lenders to use credit scoring as it is seen as a quick and objective way of assessing risk. All Experian’s services are web-enabled, and more of our clients are now using this channel of communication. The information can literally be accessed in seconds ‘ it is all instant.
Have there been any changes regarding data protection which have affected lenders?
Borrowers must be aware of how the system works. Because the electoral roll is now updated on a monthly basis, as long as people notify the local authorities straight away when they move, it should not be too long before the information is added to our records. However, during the last year there have been difficulties due to a court ruling where a man in Wakefield challenged his local authority because he objected to them providing his electoral roll details to marketing companies and said it was infringing his right to vote.
As a result of the ruling, which was more widely interpreted to cover any commercial organisation, local authorities stopped sending electoral roll information to credit reference agencies. However, in July the Government passed new regulations to allow credit reference agencies, under the permitted purpose rule to access the electoral roll for credit vetting in particular. We are updating this year’s electoral roll at the moment.
How do lenders interpret the number of ‘footprints’ on an individual’s record?
Every time a lender carries out a credit reference check, we record it through a ‘footprint.’ These searches are kept on our records for 12 months. It is obviously useful as far as the borrower is concerned because if they obtain a copy of their credit report they can see exactly who has been looking at their file. But it also helps lenders because a large number of footprints within a short space of time might indicate over-indebtedness, or in extreme cases could indicate identity fraud, so a large number of searches can ring alarm bells.
It is important lenders do not record multiple searches with regards to a single application because it can cause problems for people. However, lenders can access our records in relation to a non-credit application and this is recorded separately as an unrecorded enquiry and then when subsequent lenders process an application for credit they will not see these footprints ‘ only footprints that apply to credit applications. A certain number of searches is seen as healthy, but it is only when people’s borrowing gets a little out of control that lenders might look twice.
How can borrowers clean up their credit rating?
Making all their payments on time is important, but usually problems occur when things have gone wrong for people due to circumstances outside their control. Information is generally held for six years and it cannot be changed, but we do help people to get hold of their credit reports quickly and then help with any queries they may have after that free of charge. We would liaise with lenders over the accuracy when it is questioned and would try to resolve queries within seven to 14 days.
What is a typical borrower’s query?
Most people who contact us after having seen their credit reports do so to ask for help understanding the information, but people do pick up upon things they do not think are accurate. At the moment, the largest proportion of queries about the accuracy of credit files relates to family information where people object to information being included about members of their family who reside at the same address.
But this is going to change soon. At the moment, a credit reference check can include information not only about the applicant, but also their family at the same address or other people who share their surnames ‘ where there is a financial connection recorded. This has helped lenders combat over-indebtedness for a number of years, but it has always been a contentious issue. During next year credit reports will change so they only include financial information about the person applying to see it. Hopefully this will reduce people’s concerns in this respect.
What can be done to help those who have no credit rating through no fault of their own, such as a young first-time buyer without a credit card?
Third-party data has allowed lenders to use family level information to actually extend credit to those with no credit histories and fortunately the new arrangements regarding third-party data will still allow lenders to use household level data to override a negative decision in relation to someone with little or no history themselves.
Do you work with other credit reference agencies, is there any collaboration between you, or do lenders choose one agency to use?
There are two main credit reference agencies in the UK: Experian and Equifax. We are separate commercial organisations although we do collaborate on certain issues. Most lenders will use one agency although some may occasionally conduct checks with another agency if it is felt necessary. In relation to the information it is probably similar between the other main agencies and ourselves.
Ben Marquand is editor