How your bank manager is spying on you

Ever wondered why you can still be turned down for credit even though you have a spotless credit report? Well it turns out your bank may know a lot more about you than you think...

This article is about those six little letters that can conjure fear even within the most financially hardened individual - C R E D I T. Can I get a credit card? Will I be able to get a mortgage? What does my credit report look like?

The backbone to any credit check will always be the traditional credit report. But did you know lenders are now often looking at between 60 to 80 different factors when deciding whether to accept your application for credit?

Here are some factors they consider that you may not know of...

Liquid assets

Traditionally lenders have looked at your history of paying off debt as an indicator of how reliable you will be as a future customer. But as the financial downturn has thrown many people’s finances into disarray, lenders are now keen to get a fuller idea of your current balance sheet before issuing you with credit.

Referencing agency Callcredit uses SHARE – a collection of customer credit data provided by banks, building societies, credit card companies and finance houses. Data held could include credit limits, outstanding balances, monthly payments, start dates and settlement dates.

Callcredit and Experian also use a modelling technique known as the ‘affordability index’ to predict the amount of disposable income you possess. This will usually involve balancing any unsecured debt you have (e.g. credit card debt) against your income (obtained from your application or current account details) to give an overall ratio of your indebtedness.

If income details are not available, the model will be based on your current credit facilities and how much credit you have access to – this is why you should always cancel any credit cards you are no longer using. Behavioural data such as the amount of cash you withdraw on your credit card and whether you only pay off the minimum each month may also affect your credit rating, as it suggests a lack of disposable income.

Home value

Lenders are also keen to be totally clued up on your living arrangements. Whether you rent or are a homeowner may have an impact on your ability to get credit. For example, lovemoney.com freelance journalist Serena Cowdy was recently turned down for a credit card because she was a self-employed renter.

The next few years could also see your reliability in paying rent factor into your credit score. Several agencies have expressed an interest in using data obtained from landlords and letting agents when issuing credit ratings. It’s already in full swing over in the States - credit referencing giant Experian’s US arm has even bought RentBureau - a rental credit agency.

But even if you are a homeowner, the value of your property can still be considered when you apply for credit. Callcredit are now using an Automated Valuation Model (provided by online valuation company Hometrack) which can accurately assess the value of your property. This again allows Callcredit to warn lenders about any big fluctuations to the value of your property, so they can 'intervene' before missed mortgage payments or refuse you further credit on this basis.

Utility payments

Credit scoring agency Experian already uses customer payment data from British Gas and is keen for more utility providers to begin sharing information with them. The scoring agencies argue that gas, water and electricity are another form of credit – because they are consumed first and paid for after. Thus, the agencies want to factor this payment information into your credit report.

Payday loans are another form of finance that scoring agencies are eager to see included on reports in an attempt to provide a fuller picture of your credit worthiness. As if you needed any more reasons to avoid them like the plague!

Mobile Phones

We all know that your credit record can impact on applications for mobile phone contracts, but did you know that your phone payment information can also affect your credit record?

Mobile telephone providers have now started sharing payment data with referencing agencies in an attempt to identify unreliable customers. So make sure you pay that phone bill on time!

Risk triggers

Credit scoring agencies are very interested in what they call 'risk triggers'. These are vaguely described as 'financial events' such as missed repayments, but basically it's anything that you do that credit agencies can monitor - and lenders want to know about.

These 'triggers' are observed by credit scoring agencies and reported to lenders as an indication of a possible change in your financial situation. Callcredit monitors over 250 different types of triggers, whilst Experian has a tailor-made collection tool called Tallyman to alert lenders of any immediate or forecasted changes on your balance sheet.

Triggers will alert lenders to any missed mortgage, telephone or utility payments allowing them to act quickly to minimise any financial risk they think you may suddenly pose to them. This could involve reducing a credit or overdraft limit or sending out further requests for re-payments.

But as well as ‘risk triggers’, credit agencies are now also monitoring ‘collection triggers’ designed to alert lenders to any improvements in your financial situation – such as an increased income or decrease in credit card spending. This will allow the lender to put further requests in for re-payment, or even send you marketing for further products tailored to your new financial status.

The agencies say the trigger system is designed to help banks lend responsibly, and so protects both you and your creditor – but you might feel considerably less positive about it... Either way, it pays to remember that big banker is watching!

Postcodes

Credit scoring agencies have also begun profiling you depending on the levels of fraud and indebtedness within your postcode. To find out more read How your postcode costs you money.

I'm sure many of you will perceive these new credit scoring measures as a creepy invasion of our privacy. But after the recent financial downturn – a crisis caused in part by a lack of regulation over credit distribution – perhaps this is short-sighted. Maybe instead we should be welcoming any improvement in the methods used by lenders to ensure that a borrower can repay debt.

What do you think?

Should banks be snooping around in your utility bills? Is it right that lenders can keep tabs on your financial situation 24/7?

Let us know your views in the comment box below.

More: 10 steps to a perfect credit record This blunder will ruin your credit rating