Press releases
Secret formula leaves self-employed borrowers vulnerable.
28/06/2011
Banks have developed increasingly complex secret formulas to assess borrowers in the current environment, leaving the self-employed particularly vulnerable.
You may have a “squeaky clean” record, but there is a secret formula – called credit scoring and known only by a handful of bank employees – that has increased lenders’ dependence on every piece of customer data to avoid risky lending.
According to Smartline Personal Mortgage Advisers Managing Director Chris Acret, the collection of data from their loan book as well as each customer’s application is compiled and recorded to provide lenders with a statistical profile that could make or break a customer’s application.
“Credit scoring could best be described as statistical judgement,” Mr Acret explains. “Over many years of collecting data from file records, lenders are able to clearly see the type of loans that go into default.
“Over time, these statistical references show patterns of account conduct that help the banks to avoid risky lending.
“Credit scoring is one of the many policy changes we have seen in the lending environment in recent times. However, that’s the nature of the industry and it’s at these times that the advice and guidance of a mortgage adviser comes to the fore.
“Every field on your loan or credit application is recorded, collated and scrutinized, so borrowers need to ensure they complete the loan application thoroughly and understand what they are doing – if not, seek advice.”
Mr Acret said that of great interest to self-employed borrowers was the fact that lenders’ customer credit files also included the number of applications for credit – which can adversely affect credit score.
“One of our clients – a self-employed plumber with no defaults, a good income and comfortably able to service the debt – received a decline on his loan application based on his credit score,” he said.
“As a plumber and sole director, he had accounts with various suppliers and retailers. However, every new account he had opened had resulted in a credit check – a total of 15 credit checks over a period of time. This made the lender nervous and was the reason he received a bad credit score and the loan was declined.”
Mr Acret said that only a very select few within a bank’s credit department know what goes into determining how that bank determines borrowers’ credit scores – even the people that assess the loan often don’t know the exact criteria.
“Literally, it’s a case of ‘computer says no’,” he said.
“However, self-employed borrowers who receive decline notices will want to know how they can improve their credit score – and it’s often the little things that can make all the difference.
“For example, your application will be viewed favourable if you include more phone numbers on your application – if you don’t have a home phone but you have a mobile number, which is increasingly common these days, include your mobile number in the home number field.
“If you’ve got a home fax number, include that as well.
“Also, if you have all of your savings tied to your home loan and, therefore, you don’t have a separate savings account, consider setting one up. This will make a difference to your Asset and Liabilities Statement.
“Including things like home contents, superannuation and vehicles can also bolster your application.”
Mr Acret said that not all lenders credit score, and of those that do some are flexible and others were very “black and white” in their assessments.
“With every field of an application now under such heavy scrutiny by the lenders’ systems, it’s important to seek the advice of an expert who is familiar with lenders’ requirements to ensure you have the best chance of securing finance,” he said.
“Regardless of the lender, working with an experienced mortgage adviser – particularly one who has access to the Veda credit check facility – means issues can be identified early and strategies put in place to support your loan application.”
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