How do lenders decide whether to give you credit?
Whenever you apply for a loan, the lender has to decide whether to lend to you or not. Most lenders make this decision based on whether or not you are a good risk – in other words you have a high likelihood of being able to pay the loan back in full and on time.
Lenders use different things to help decide whether to lend to you. All lenders have a scoring system, whereby the information that they collect from you during the application process is scored against their criteria (this is different for every lender). The higher your final score, the more likely you are to be accepted for a loan with that lender. Lenders don’t have to reveal your score to you, but they do have to tell you which credit reference agency/agencies they used to get the information about you. This enables you to find out if the information they used is correct.
Just because you a refused by one lender, doesn’t mean you will be refused by others. Every lender has slightly different criteria – it’s what makes them competitive. However, be wary of applying to a lot of lenders over a short period of time, as these lenders will be able to see a trail of whom you have applied to on your credit reference file and this might affect your credit score.
There are three credit reference agencies that lenders can use to check the information on your credit reference file (this file contains information about your borrowing and financial behaviour). They are Experian, Equifax and CallCredit. You can ask for a copy of your credit reference file from any of these agencies. You will have to pay a small fee (£2). Credit Reference Agencies offer services where you can be sent a copy of your file on a regular basis. They charge more for this, so make sure you actually need this type of service before you sign up.
On your credit reference file the following information is held:
- Addresses you’ve been registered to vote and the dates you were registered there. Any other addresses you have lived at.
- Any public records like court judgements, bankruptcies, IVAs, Debt Relief Orders and Administration Orders.
- Information about how you have managed your existing accounts e.g. your main bank account and any other borrowing you have had in the past.
- Any homes that you’ve had repossessed.
- Anyone you are financially connected to e.g. a partner that you have jointly applied for a mortgage or bank account with.
- Any previous searches – companies who have look at your credit reference file in the past 12 months – perhaps because you’ve applied for credit elsewhere.
- If you have had any fraud against you there may be a marker to protect you.
Information held on your file generally lasts for six years, but things like bankruptcy restrictions may last longer.
If any of the information on your credit reference file is incorrect you can write to the credit reference agencies to get it corrected. You can also add extra information to your situation – for example if you had a past debt that you’ve now paid off. You can’t ask for something to be changed just because you don’t want lenders to see it. You can only correct what is incorrect, or update a situation.
Often in the case where you have a low score, you will be asked to provide a Guarantor and that’s where we come in. TFS Loans are Guarantor Loans specialists. We provide loans for people who have had borrowing issues in the past and therefore have a lower credit score. You will need to provide someone to act as a Guarantor on your loan application. That person needs to be credit worthy (so they will have a good credit score), aged 18-78 years old and a homeowner who lives in the UK. Because the Guarantor is responsible for the repayments if you are not able to make them, they will have to give information about their personal details when you apply so that we can check they are credit worthy.
It’s a great way of being able to access a loan, when all other avenues fail and it may be a more cost-effective option than more short term solutions like payday loans. We offer loans from £1,000 – £15,000 over 1 to 5 years. Our interest rate varies from 29.9% – 69.9% APR. 44.9% APR Representative (in other words the majority of loans taken by TFS customers are at a rate of 44.9% APR).
Where to go to for more advice:
The Money Advice Service is a free, independent service. Their website (www.moneyadviceservice.org.uk) has lots of useful information about borrowing and managing your money.
Credit reference agencies:
Registry Trust operates the public registers of court orders for the UK. You can use their online search to check whether you have a court order registered against you.