Despite the claims made by a whole host of companies advertising in the tabloid press and on daytime television, there is no such thing as credit repair.
It might be an appealing prospect for those in debt – but it simply doesn’t exist. There is no way to ‘wipe the slate clean’ on a credit report that has genuine defaults, CCJs and other information which gives an individual a lower credit score.
It is, however, important to understand that there are legitimate steps that an individual can take to ensure they have the best possible score for their circumstances. This is where I believe the lending industry has a crucial role to play.
There are two key ways lenders can actively assist individuals. Firstly, they can help their customers maintain and improve their credit file. And secondly by ensuring the quality of the data shared with credit reference agencies is good, accurate and timely.
Improving the process
When a customer is refused credit, lenders need to do more than shrug their shoulders and point them in the direction of the credit reference agencies. We receive many calls from people who have been refused credit, saying that the lender told them ‘Equifax has turned them down’.
This is completely misleading but it seems to be the easy ‘opt-out’ for customer-facing staff in busy call centres. It is also misleading as while an individual may not meet the criteria for the initial application made, they may still be a potential customer. Yet, by simply referring them on to the credit reference agency, the customer relationship is immediately impaired.
I believe lenders should consider spending more time and investment in training call centre and other customer-facing staff to help consumers understand why they have been refused. Well trained staff could spend a few moments explaining the steps customers can take to improve their application – and this could mean a returning customer at a later date.
Take notice
Consumers also have a part to play and can be empowered to make sure their file is correct. Applying for their credit file – before they make a new application for credit, a loan or mortgage, gives consumers a valuable insight into their credit rating and means they can make sure the information accurately reflects their previous and current payment performance.
If an individual’s credit file shows late payments on a credit account, it could have a negative effect on their ability to gain credit. But in these cases, a ‘Notice of Correction’ may help.
A Notice of Correction is a short explanatory note that can be added to an individual’s credit file, explaining any circumstances about information in the report. For instance, explaining why an account fell into arrears – perhaps because of illness or redundancy. Lenders will see the note and take the information on board when making a decision.
Another tool that can be used by individuals is a ‘Notice of Disassociation’. This is relevant to individuals who have had a joint account or joint financial commitment with a partner or relative. If a customer has applied for credit with someone else, this creates a link, which shows on their credit report as ‘associations’. These will remain until the joint agreement is closed and the individual informs the credit reference agencies.
Once the account has been settled, consumers can apply for a disassociation which will break the financial tie with that person and exclude their data from being taken into account in any further credit applications
Electoral roll
The electoral roll is another key aspect of ensuring a smooth application process, but many consumers are still unaware of its importance. With rising incidences of credit and identity fraud, lenders place considerable importance on electoral roll data and would do well to help consumers understand its value.
Electoral roll information is provided to credit reference agencies to verify a person’s identity for credit checking purposes, plus it is vital for fraud prevention. This is why consumers need to make sure they are registered properly, as this information will appear on their credit file and will be used by mortgage lenders.
The accuracy of electoral roll data is therefore crucial in consumers being able to get credit. This goes right down to making sure address descriptions are correct, especially in the case of flats or a house with a name. Lenders should ensure that whatever their customers use when applying for a mortgage should be exactly the same as their electoral roll data.
Quality is vital
Now onto the other issue that I believe is crucial to actively assisting individuals – data quality.
The fact is that each of the credit reference agencies collects a wide variety of data for consumer credit files, from information on credit and store card accounts to mobile phone account details as well as data on CCJs and other court actions. This is all used to create a payment history, enabling a lender to predict how likely a customer is to keep up with repayments.
There’s also the vital identity verification data provided by each credit reference agency – the electoral roll.
It is crucial, therefore, that this range of data is accurate in order to provide a true representation of the individual’s credit worthiness. Lenders, therefore, need to ensure they have the right systems in place to provide all credit reference agencies with good quality data.
Over the last decade data sharing has become universally accepted as the key to ensuring lenders make the right credit decisions, preventing over indebtedness and fraud. There are two key factors that are integral to the success of data sharing; accuracy and timeliness of the supply of data. Both are almost entirely in the hands of the data providers. Of course, the credit reference agencies have a role to play in maintaining the data – but it is the lenders who must ensure it is accurate in the first place, and provided in a timely fashion.
Potential data sharers need to provide the data in the right format, so that the whole industry can benefit from the information. All the credit reference agencies have worked with the credit industry to agree formats for how data is shared. Credit data needs to be mapped to combine demographic data with transactional data. In addition, the current repayment status of customers should be described in a standard format, along with status history. Lenders also need to define their late payments in line with the whole industry, to ensure they are on the right arrears cycle.
In order to maintain the quality of the data supplied, lenders and providers should constantly monitor the data they provide to ensure that any errors are removed from their monthly supply to credit reference agencies. If errors are identified once the data is supplied, the lender should have processes in place to ensure the data can be corrected in a timely fashion.
Empowering lenders and consumers
The goal of credit agencies is to ensure individuals can access the credit they deserve, while supporting lenders in lending responsibly. Working with lenders and consumers to highlight the importance of data quality and working with lenders to help consumers understand the reasons for credit refusal, we believe are two key steps in helping achieve this goal.
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