Weekly wrap - Saturday 13th March
Comprehensive credit reporting updates
Banks are steering towards comprehensive credit reporting. More and more, banks are starting to rely on this one document and you'll find that they will report on two years' worth of your conduct on credit facilities. By law, a lot of lenders now are required to feed back into what is a central database. Information is recorded on your credit file: if you applied for finance, you see an inquiry. Think about all of the little things such as "Oh no, I always see that as late payment fees", or "Oh, it was overdrawn. I had money, just not in the right account on the right day." That's now reported. So when you go to apply for finance but you missed a late payment on a credit card three months in a row last August... That is actually going to affect your ability to get a loan today.
Even closed facilities will show as conduct over the past 24 months
The other part to bear in mind is that even closed facilities will still show conduct over the past two years. When we apply for credit, we need to show the banks that we can meet our current commitments to encourage them to extend credit to us. So if your credit file shows that there are late payments or current or previous commitments that haven’t been made on time, that will affect our ability to show the bank that we can afford new debt.
What can you do?
Sit down during the week or over the weekend, have a look at your direct debit. Do you leave enough in your bills account? Is there a reversal, a late payment, an overdrawn? If you don't have direct debit set up or automatic payments or things set up to come out and on time, you need to get them set up as soon as possible so that it doesn’t affect your credit file because it can cause issues for quite some time.
And one of the important things we do with all of our clients is getting a copy of that credit file upfront, because we need to try and mitigate to work out whether that's actually going to be okay for a bank.
Banks also use a scale. Zero to 29 days days late in your payment, you might get a one. If you were 30 to 59 days late in that payment, you might get a two. For a lot of banks right now, if you've got two twos in the last 24 months, they will often decline applications.
A client of ours who had just sold a property and has over 50% deposit, tried to go to the same bank to get a new loan for less, and couldn't get it on the basis that there were four missed payments over a period of 24 months on a credit card. And he'd just paid out a mortgage that was higher than the one he's currently getting. It's incredibly frustrating.
Get in touch with your broker - us!
As a broker, we have access to over 60 lenders, which are all going to look at this a little bit differently. The majority of them are fairly tough, but there are some lenders out there that have a little bit of flexibility. They're prepared to consider your application on its strength, and hear your story, take into account that you had money in the bank on another account when your payment didn’t go through.
Also go to Equifax, and download a copy of your credit file now, just to understand what it looks like.