How to get credit where credit is due

Have you ever been refused credit? Ever wonder who it is who gives the thumbs up or down to your new car? As the salesman scuttles back to his office to "see about the finance", what does the financing company see in you to make you a worthwhile credit risk - or not?

The answer is that the financing company, or anybody from whom you wish to borrow money, may see an awful lot about the financial and legal transactions of both you and your family. Some information will have been provided by you, such as your job, age, and whether you own your home. But other information has been gathered without your knowledge, usually by a credit reference agency.

The lender will give you an initial credit examination, which consists of being allocated points for various bits of information. These points are totted up, and a pass will help you get credit, whilst failing will work strongly against you. This is known as credit scoring.

Contrary to popular belief, credit reference agencies do not pass judgement on creditworthiness. What they do is provide lenders with financial and personal information about anybody. There are two main credit reference agencies, CCN and Equifax, which took over Infolink last year.

Their first point of reference is the electoral roll. This shows that you live where you say you do. It also shows everybody else with the same surname who lives at your address, and who lived at your previous addresses.

County Court debt judgements and bankruptcies during the last six years against those addresses are also marked on your credit file. If the debt was paid within one month of judgement, it can be cancelled by the court and removed from the records. After that, the court issues a Certificate of Satisfaction, which should automatically be recorded on credit reference agencies' files.

As well as any previous searches on your file, credit agencies keep details of whether your credit accounts, past and present, and those of family living at your address have been kept up to date or in arrears. This information will be provided to any subscriber who asks for it.

If there is evidence of debt default on your credit file, lenders are likely to assume there is a financial connection with you, and you may be refused credit, despite having no personal history of debt problems. These irrationalities of credit evaluation are compounded by the prevalence of inaccuracies on personal credit files.

If you are refused credit, you should always ask the lender why. Although lenders are not obliged to give you all the details, they should tell you whether you failed to reach their pass mark on their credit scoring system, whether a credit reference agency has given them adverse information, or if there is some other reason.

If you think the lender's decision is wrong, ask how you can get the decision reviewed. If the reason is adverse information from a credit reference agency, you have a legal right to know its name and address. But you must act quickly. You have 28 days after the last date on which you contacted the lender about the credit deal to write and ask for details of the credit reference agency. A sample letter for this and all other steps in this procedure can be found in the Office of Fair Trading's booklet 'No Credit'. If an agency was used, the lender must reply within seven working days of receiving your letter.

You can now write to the credit reference agency asking for a copy of your file. It will cost you pounds 1, which you must send with your letter. You should include your current full name, address and postcode, together with any other addresses you have had during the last six years. If you run a business, you should give its name and address too. If your file contains either incorrect information, you can ask for your file to be amended. The agency must reply within 28 days.

If the agency informs you that it will take no action, then you have 28 days from receiving its letter to send a notice of correction. If the agency refuses to add the notice of correction to your file, then it must refer the matter to the Director General of Fair Trading, who will invite you to an interview within 14 days.

You do not have to be refused credit to see what information the credit reference agencies hold on you. Lesley Batts of the Data Protection Registrar's Office recommends that people check their files as a matter of course, to clear up any problems before they apply for a loan. You can write to the agencies at any time and ask for a copy of your file.

Useful addresses: The Director General of Fair Trading, Field House, 15-25 Bream's Buildings, London EC4A 1PR. CCN Group Ltd, Consumer Affairs Department, PO Box 40, Nottingham NG27 2SS. Equifax Europe (UK) Ltd, Consumer Affairs Department, Spectrum House, 1A North Avenue, Clydebank, Glasgow, G81 2DR.

Credit: a cautionary tale

When Sarah Cambridge, an advertising administrator, and her husband Peter, a Concorde engineer with BA, applied for a mortgage with their branch of the Leeds, now part of the Halifax Building Society, they were stunned to be turned down.

"The Leeds said they couldn't show us our reference, or tell us what was wrong with it. We telephoned Equifax [credit reference agency], who said they could not give any details by phone, or even fax. It took almost a week to receive a copy and when it arrived, it was clear. There was no bad credit. Apparently on 12 July, instead of sending out the usual single sheet of paper for a clear reference, the Equifax computer had produced details of every loan and transaction either of us had ever made. As there was more than a single sheet the Leeds could not give us the go ahead. Eventually we got our mortgage. We did, however, suffer an agonising week of not knowing what we had done wrong, thinking we were going to lose the house."