Fancy A Cambridge first-class honours degree? Cut down on the partying, work hard and it’s within your grasp. Anything over 70% gets the job done.
What about the most nerve-wracking moment of adolescence? Not that. The driving test on which hangs the freedom of the road. You can make up to 15 driving faults – provide none are serious or dangerous – and still be granted your licence by a shaken instructor!
If Manchester United or Chelsea win 70% of their matches, that ratio almost certainly guarantees them the Barclays Premiership trophy.
Yet there’s one score that needs to be almost perfect, with hardly a blemish – or you are consigned to the reject bin, a failure, no second chances, told to stand in the naughty corner for a couple of years until it settles down.
“Nobody’s Perfect” – how often do we use that universal truth for our various misdemeanors – does not apply to credit scores, especially when you are after mortgage. That’s when your past catches up with you in a way you can’t escape or imagine.
Most would agree that County Court Judgments are serious blot on your financial landscape, but is failing to pay a mobile phone or electricity bill on time a couple of years ago really a hanging offence? Applicants have been declined a mortgage for less.
It might be totally unfair, but that’s the way it is. And that’s why expert opinion is crucial to help you find the path of least resistance in your quest for a loan – if there is a way through. You can’t play the game if you don’t know the rules.
Remember that today’s daily domestic and personal financial organization is light years away from even a couple of decades ago. Then there was the electricity, gas and phone bill to pay quarterly by cheque, an annual insurance, as well as the monthly mortgage, if you had one
Now there’s standing orders, direct debits, BACS, CHAPS, as well as the disappearing cheque to pay for the various credit cards, life-home-house-health-car insurances, the monthly mobile phone, council tax, water, satellite, optician, dentist and iTunes bills.
Institutional lending was normally dependent on two things. “Have we got enough security? Can he afford to repay the loan?” Concerns could see a 75% request reduced to 60% to increase the lenders security and the borrower understood.
Now, it’s all or nothing. The internet is full of websites declaring how you can boost your credit rating – close unused credit cards, space applications, get on the electoral roll, etc. Big Brother is alive and well when it comes to credit scores. It has become another exploding service industry.
Much of that advice is sound, but only an adviser will be fully aware of your personal circumstances and background.
There is some relief for those who a) have parking and driving fines, or b) Council Tax arrears – neither will appear on your credit report.
Credit scoring varies all over the world. In Austria, credit scoring is done as a blacklist; in Sweden, the financial authorities delve deeper, find those with “bad payment” attitudes and don’t condemn those who miss the odd payment. They have two levels of credit scoring – “good and bad”.
In the USA, the use of credit histories in employment screenings increased from 19% in 1996 to 42% in 2006.
The reason banks and building societies now treat us like children is the financial collapse of 2008, which was caused by the irresponsible lending of banks and building societies.
Yet the new Financial Conduct Authority increasingly wants to put the borrower, not the lender, under the microscope and regulate how he or she organizes her financial life.
Maybe it’s time to put the boot on the other foot and see how the banks and building societies would fare if they came asking us for a mortgage or loan after their recent financial record.
Mr Barclay: “Loan Application declined. The records show that last year you were fined £290m for manipulating the LIBOR rate – and this year you have announced you’re setting aside £2.6 billion for mis-selling Payment Protection Insurance (PPI), as well as £850m for claims on interest-rate swap products sold to small and medium-sized businesses.”
Mrs HSBC: “Application declined – poor recent record. Last year, you paid out £2.8bn to cover past activities – £1.25bn in fines for money laundering and £1.55bn was set aside for mis-selling financial products in the UK.”
Ms NatWest: “Loan application declined. Your credit score shows a history of bad management and a major loss of shareholder value. Two years ago, you were fined £2.8m for poor complaints handling.”
Master J P Morgan: “Mortgage application declined. You will not be surprised by our decision. Just last month you were fined £62.4m by the US Commodities Futures Trading Commission to settle the losses stemming from your ‘London Whale’ trading debacle in 2012 – and a week later you were fined £8bn to settle investigations into your mortgage-backed securities.”
Hardly any financial institution would be offered a mortgage or loan on its recent performance or history. This week Lloyds Bank took their total for PPI compensation to £8bn.
Perhaps the Chartered Institute For Securities & Investment’s recent exam results offers a clue. As ever, 70% is the pass mark – yet only 47% of candidates will be climbing the stage to receive their certificate on the subject of “Combating Financial Crime.”
Our advisers are here to help you so please do get in touch. To contact our Northern Ireland office, call 028 6863 2692; our Cornwall office – 01872 222422 and you can reach our Southampton office on 023 8064 9674. If you prefer to email, please contact us on info@wwfp.net.
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