Mortgages and Credit Scoring

When you apply for a mortgage, the lender will look at your application and your personal details to help them to determine whether they can lend to you and the appropriate level of credit to offer you.

Mortgage lenders will usually assess applications using a process called credit scoring.

When you apply to them, the lender will ask for your permission to get information about you from credit reference agencies.

How does credit scoring work?

Credit scoring takes into account a number of things including:
The credit scoring system gives points for each piece of relevant information such as how old you are and how you have managed your accounts with them or other organisations (or both). It adds these up to produce a score. This overall score is then used to help them decide whether or not to agree your application.

If your score does not reach this level, unfortunately the lender may have to turn your application down.

The points system is based on a large amount of credit data that has been collected over many years. The analysis of this data allows them to identify characteristics that predict how likely someone is to pay the loan back.

For example, if individuals in a particular group have proved to be more likely to meet payments than those in another group, the allocation of points will reflect this. This means that decisions are much more consistent than basing them on personal opinion alone.

The lender may also have other criteria they use to decide whether they will lend. These reflect their commercial experience and the needs of their business.

Why do mortgage lenders use credit scoring?

Every credit or loan application involves a certain level of repayment risk for them, no matter how reliable or responsible you are. Credit scoring allows mortgage lenders to predict the level of risk for each applicant based on the information they have.

If they feel your level of risk to them is too high, the lender will not accept
your application.

This does not mean that any applicant they have turned down is a bad payer. It simply means that based on the information available to them, they are not prepared to take the risk of granting that loan.

Is the credit scoring system fair?

Mortgage lenders believe that credit scoring is fair and unbiased, and that it produces consistent decisions. It is designed to make sure that all applicants are treated fairly.

The lender won’t turn you down simply because of the place or area you live in, and they certainly don’t discriminate on the grounds of sex, race, colour, religion or disability.

Credit scoring does not single out a specific piece of information as the reason for turning down an application, and methods of credit scoring are tested regularly to ensure they are fair and consistent.

The Office of Fair Trading regulates credit and believes that credit scoring helps to ensure lenders are lending money responsibly.

What is a credit reference agency?

It is an independent company licensed by the Office of Fair Trading, under the Consumer Credit Act 1974, to hold information on individuals. The agency holds details about almost every adult in the UK, which includes facts about your financial background.

This information helps lenders to verify your identity and provides details of past and present financial commitments and / or credit relationships.

Credit reference agencies only supply factual information, and they do not state any opinion on your creditworthiness. Agencies do not know which applications are successful or declined, and so can’t tell who may or may not
have been refused credit. Credit reference agencies do they hold a blacklist of people or properties.

What information does a credit reference agency hold?

Credit reference agencies hold different types of information, and some will apply to your mortgage application. For example, they hold details of who is on the electoral roll, court judgments and bankruptcies, credit account performances, and records of credit enquiries.

If you have any county court judgments, you may find it difficult to get credit. You can get a copy of your personal information held at a credit reference agency by writing to the address shown below, enclosing a £2 fee. The lender will tell you the credit reference agency (agencies) they have used.

You will need to tell the agency your full name (including any former names) your date of birth, and the addresses you have lived at during the last six years.

Experian
Consumer Help Service PO Box 8000, Nottingham NG80 7WF
Telephone: 0870 241 6212

Equifax plc
Credit File Advice Centre PO Box 1140, Bradford BD1 5US

We recommend that you approach one of these two agencies - or companies owned by them. There are other companies offering credit reports, however, the information held may not be as comprehensive

With a copy of your credit file you will be sent a booklet which explains how to interpret the information held and what your rights are. You can, for example, challenge the accuracy of any details shown.

If you believe that what you see is not correct then you can contact the organisation that supplied the information and tell them what you believe is wrong and why. If, after investigation it is agreed that the information is not accurate, then it will be
changed.

Even if there is accurate information held which affects your ability to obtain loans or credit, you have the right to put a ‘notice of correction’ on your credit file. This is your opportunity to make a statement, if you wish, to explain your version of events.

Once this ‘notice’ has been placed, every lender who looks at your file must read the ‘notice’ before making any lending decision about you. Naturally, it is up to the lender to make its own decision, but at least they will have taken your statement into account.

What happens if my mortgage application is turned down?

If the lender can’t accept your application, they will tell you the main reason why you
have been turned down. Some examples of why they might turn down a mortgage
application are:

You may not have passed their credit score
There may be information about you at one or more of the credit reference agencies, which has affected their decision.
The lender may have a specific internal policy which results in their decision. For example, they will not lend to you if they feel that your current income is not enough to allow you to repay further credit comfortably.

There may be times when, even though the information they receive from the
credit agency is OK, they may not be able to accept your application simply
because is doesn’t meet all of their current business criteria.

Would a different mortgage lender give me a different decision?

All mortgage lenders have different lending policies and scoring systems, and so applications to them may be assessed differently.

This means that one lender may accept your application but another may not.

What information does a mortgage lender provide to credit reference agencies?

Once the mortgage lender has accepted your application and your account is up and running, A lender will, like most lenders, continue to share information with the credit reference agencies about how you manage your account.

Any information they do share is only done so in line with the terms of the Banking Code, the Data Protection Act and the data protection statement you sign when you apply for, or agree to the terms of, the product.

Under the terms of the Banking code the lender must notify credit reference agencies of details relating to personal debt. They will inform the agency of a situation in which you have defaulted on borrowing only after they have given you a formal demand for payment.

The lender will always give you at least 28 days’ notice that they will be sharing this default information with credit reference agencies.

If the worst happened and the lender had to take possession of your property due to a breach of the terms and conditions of a mortgage or secured loan, they are required by the terms of the Banking Code to let credit reference agencies know.

Your name would also be placed on the Council of Mortgage Lenders Possessions Register, and as a result, this information could be passed to other lenders.

Is my information used in any other way?

Before the mortgage lender can open an account, they will check your details with fraud prevention agencies, and may make searches at credit reference agencies who will give them information including information from the electoral register to verify your identity.

Scoring methods may be used to verify your identity.

The credit reference agencies will record details of the search whether or not the application proceeds, but this is not a credit check and will not be seen or used by lenders to assess your ability to obtain credit.

If you give false or inaccurate information and they feel that there is a reason to suspect fraud, they will record this.

The lender and other organisations may use and search these records to help make
decisions about credit-related products and services as well as insurance
proposals and claims for you and members of your household.

The information will also be used to trace debtors, recover debt, prevent money laundering and fraud and for statistical purposes.

Can I appeal against a decision not to lend to me?

You may ask the mortgage lender to consider their decision again. In this case, they will generally ask you to provide them with extra information which you feel they haven’t already taken into account.

Credit Repair Companies

Please be careful when dealing with companies that claim they can ‘clean up
your credit history’, and charge you to do this. You can sort out your credit
file yourself.

You can get free advice and information on a wide range of things, from
County Court Judgements and bankruptcy to the contents of your credit file.

Help with Adverse Credit

For more information on credit advice, contact: For help with debt or credit problems contact:
You can obtain a free booklet – ‘No Credit?’ from the UK Office of the Information Commissioner on 0870 442 1211