Money magic: Most banks decide whether to lend you money using a computer program
Money Mail can reveal a secret trick to beat the computers that banks use to reject applications for credit cards, loans and mortgages.
Most banks decide whether to lend you money and what rate they will charge you using a computer program that pores over your debts and borrowing history. Other than pressing a few buttons, humans are barely involved.
This has led to a worrying rise in the number of ‘computer says no’-style rejections, with borrowers turned down for unfair reasons such as a late gas bill payment years ago.
Some customers are refused credit while others miss out on the best rates.
Unsolved complaints about credit reports jumped by a fifth between April and December last year to 229, compared with 189 in the whole of 2014, figures from the Financial Ombudsman Service show.
And that’s just the tip of the iceberg, as the data only includes people who took their gripe further after being fobbed off by a bank or utility company.
Now we’ve discovered a little-known rule that can help you avoid unfair computer rejections. All you have to do is write a letter to a credit reference agency such as Experian explaining your version of events.
According to the rulebook used by big banks, this forces a member of staff to look at the application, so you bypass the computer.
Justin Basini, a former executive at Deutsche Bank who now runs credit-checking company ClearScore, says: ‘This is a clever way to beat the ‘computer says no’ software used by many banks. If you try to explain why you were late with a payment, someone will have to hear you out. It means a person will look at your file and make a better decision.’
In the past, you could sit down with your bank manager, talk about your circumstances and explain any problems. Now almost all High Street banks and financial companies use computer programs instead.
Credit reference agencies help the banks decide if you can be trusted to borrow money. These powerful companies record all of your personal details, including defaults on payments, how much money you have borrowed and if you are being chased by debt collectors.
This information is turned into a credit report, which the banks’ computers check to assess if you’re a risk. A missed payment can prevent you getting a mortgage for up to seven years, and once an answer is given it can be hard to argue your case.
Never mind what the computer says: If you write a letter to a credit reference agency a member of staff must look at the application. Pictured: David Walliams stars as Carol Beer in Little Britain
Money Mail receives hundreds of letters every year about unfair credit rejections. In April 2013, we told how Richard Husband and Lauren Wolstencroft were refused a mortgage because Mr Husband, then 30, had missed his first payment on a Virgin Media contract two years earlier.
It turned out this was because Virgin Media had taken incorrect details — but it took our intervention to get the problem fixed quickly.
You can give your side of the story before getting into a tricky situation by asking for a Notice of Correction to be added to your file.
The industry guide to credit scoring, which is backed by trade bodies such as the Consumer Credit Trade Association, says staff must look at any application with a note on it.
If you were ill, bereaved or going through a divorce, you can explain this affected your ability to pay.
If you were living in a shared house and missed a final energy bill, you could say you were unaware it was due and paid as soon as you realised. Whether these explanations make a difference depends on how harsh the bank’s lending policy is and the type of problem with your report.
A couple of late payments are more easily explained than a series of them over a long period of time.
Credit reports are compiled by three agencies: Equifax, Experian and Callcredit. You will need to contact each individually to get a note added to your file.
Before you start, make sure you have seen a copy of the report they hold on you. You can do this by going to their websites.
The agencies will urge you to sign up for pricey monthly payments, but you have a statutory right to buy your credit report for £2. Some agencies offer free trials. Make sure you cancel before it ends if you take up.
A Notice of Correction should not be longer than 200 words and must not be libelous or frivolous. So you can’t use it to complain about a company you’re in dispute with over a bill.
To get an error corrected, you must contact the firm that put the mistake on your file and the credit reference agency to ensure it is removed. This can take several weeks.