Credit history and public record data are included on a credit report, and this information is one factor which lenders will use in their decision. Information provided on the application form as well as information they may already hold on applicants are also used – in addition to their own lending policy. Having looked at the credit report to get detailed insight into credit history, lenders will give the applicant a credit score of their own. Credit expert Dr John Glen spoke exclusively to Express.co.uk about the current credit scoring system.
During the interview, Dr Glen urged reform of the system, explaining that some customers have not been introduced to the act of building credit history, such as by opening bank accounts and repaying bank loans, and paying credit back on credit cards – thus being unable to build a credit file.
Some people may need to call on a form of credit, but not have the credit score to do so at a bank, he explained.
Dr Glen said: “What happens then is they’re defined as subprime consumers so they can’t go to the banks and they have to come to organisations like Elevate to get the finance to allow them to borrow.”
There are approximately 15.7 million subprime consumers in the UK who rely or have relied on high-cost short-term credit – due to not having access to mainstream credit options, according to data by Elevate Credit realised in July this year.
Some subprime customers may wonder whether they would be affected when it comes to mortgages.
And, according to Dr Glen, a damaged credit score could reduce the choice that’s available to the prospective borrower.
He said: “If their credit score is being damaged it’s going to impact, and frankly it’s going to almost exclude them, from getting mortgages with the mainstream lenders that we would go to,” he warned.
“I think the frightening thing is how long it would take them to rebuild that credit history.”
Having secured a mortgage, some borrowers may be looking to cut costs on their overall repayments.
And, according to online mortgage broker Trussle, two million homeowners who don’t switch their Standard Variable Rate mortgage could save £4,500 per year by switching to a market-leading mortgage deal.
Founder and CEO of Trussle, Ishaan Malhi, said: “Consumers are essentially being penalised for staying loyal to their providers and collectively overpaying billions of pounds across the mortgage, utility, product and service sectors.
“Mortgages are clearly the worst offender with the average loyalty penalty standing at £4,500 per year.
“Since the CMA received the super complaint last year we’re yet to see any real progress, despite assurances from the then-Government.
“Similarly, there’s been little movement from the mortgage industry.
“At Trussle, we’re campaigning for a Mortgage Switch Guarantee to make mortgages fairer.
“We want to ensure that lenders commit to a greater transparency to help borrowers switch easily and eliminate the mortgage loyalty penalty once and for all.”