SPECIAL FEATURE: Why good applicants are rejected

Using credit scores to determine if a borrower is eligible for a loan means more people are looking for alternative options.

Many mainstream lenders currently determine a customer’s suitability for a loan using an automatic credit scoring system which is set to reflect the customer profile to which they want to lend. The lenders 'score' attempts to predict the applicant’s likely behaviour. Naturally these scoring systems are never published and differ from lender-to-lender, and product-to-product.

This whole process is for lenders to select their ‘perfect customers’, so reasons for rejection can seem peculiar, but to the lender makes perfect sense as the score attempts to predict the applicant’s likely future credit worthiness.

To predict the applicants likely future behaviour the Lenders auto scoring systems, takes into account many aspects of the customer’s past and current circumstances.

Typically these will include information gathered on an application form, suchs as, address, postcode, family size, salary, the loan purpose, home owner, home owner with mortgage, occupation, length of employment, property type etc.

One simple mistake, for example a misquoted salary figure, could lead to a rejection of the application.

Credit reference agency files are also used such as Experian, Equifax and Callcredit which compile information, including Electoral roll information, County Court Judgments and bankruptcies, records of other lenders who've searched the applicant’s record and associated addresses.

These factors then all add to a unique credit score on which a lending decision is based, which importantly reflects that particular lenders ‘perfect customer’, but not them as an individual person.

Lenders who adopt this approach to decision making prefer to deny a high number of good quality applicants rather than overspend on personalised vetting procedures.

This is where specialist lenders come in to provide a much needed alternative option to applicants and cater for the gap that the mainstream lenders are unable to fill, by assessing individuals on their past, current and future personal and financial circumstances their provable income, affordability and future ability to maintain repayments.

In times where funding is more restricted, these credit scores are naturally inhibited which makes it even more difficult for worthy borrowers to secure finance.

Applicants who would have previously been accepted find themselves rejected for no apparent reason.

It may appear that they have a well established job, a good credit history and salary but with an autoscore they simply no longer suit the lenders required customer profile.

The peak of recession saw many people get into difficulty through no fault of their own, which will cause issues for the foreseeable future. Even those that have got back on their feet have managed to put these difficulties behind them and now have a stable income source, with strong affordability which is sustainable are also likely to be declined.

Having the ability to provide brokers with criteria to manually underwrite, specialist lenders can really get to grips with a case and they cater for a wider variety of individual circumstances, income sources, status profiles, property types and purpose of loan.