Creditworthiness

Your credit history and score is all the information contained in your credit report, such as credit accounts, balances due and details of past payment history.

Your credit score is used by lenders to determine your creditworthiness.

Failure to carry out a proper creditworthiness assessment before we lend can have serious consequences for us and you - especially if you fall into financial difficulties and cannot afford the debt repayments. As a responsible lender, we ensure we do everything we can to avoid this.

Creditworthiness is important when you want to borrow money, but managing your finances well also has benefits in relation to:

• Landlords’ credit checks when deciding whether to rent to you and size of deposit must put down
• Prospective employers as part of their recruitment background checks
• Getting a mobile phone contract
• Increasing loan options and saving money borrowing at more competative rates.

In line with FCA guidelines, we undertake a tiered approach to creditworthiness assessments based on an individual approach to all of our customers.

So, we look at your financial circumstances – in terms of your outgoings in relation to your income – but also your ability to manage finances. This could include your credit score, whether you pay bills on time and how you manage cash flow throughout the month.

We only ever lend responsibly and, for applicants with a lower disposable income after outgoings, and who are requesting a higher amount of credit at a higher rate, the level of scrutiny is even higher when making the decision to lend.

But we also take the time to understand our customers’ needs on a human, personal level, which online processes and algorithms can miss. Of course, we take credit history into account, but we believe each of our customers should have the chance to build a creditworthy future.

We also support them throughout the repayment period and we regularly review loans and if your credit rating has improved we may be able to offer you a better rate.

We always carry out creditworthiness assessments before approving any customer loans, whether that’s a new application or an extension on an existing one - even if the amount is not significant and it’s been increased before.

You can improve your credit score – and therefore your credit history – by taking these steps:

• Get on the electoral register to prove who you are and where you live and check it for any errors. You can sign up here.
• Build up your credit to show potential lenders that you are reliable when it comes to repayments. Having some sort of debt and being able to evidence regular repayments is better than having no debt at all.
• Don't make too many credit applications. Making a number of requests in quick succession can be seen as a sign of financial distress and each will be recorded on your file.
• Always pay your bills as late payments are also recorded in your file. This includes utility bills and credit cards.
• Try to reduce your existing debt before applying for new credit.
• Make sure any relationship breakups are financial breakups too. If your ex has financial troubles down the line and you’re still linked, it could have a knock-on effect on your life and financial affairs.
• Use a credit-builder credit card, which tend to have high interest rates compared to normal cards but if you can show you're a responsible spender with them, your credit score could improve.

Your credit report is a summary of your financial history provided by a credit reference agency (CRA), which keeps financial information about nearly every adult in the UK.

There are three main agencies in the UK - Experian; Equifax and Callcredit. Each shares information about our credit history to lenders like us – as well as mortgage providers, banks and credit card companies - to help them decide whether or not they should lend money to you.

You’re legally entitled to a copy of your full credit report from each CRA:

• Experian offers free credit score access on its website and you can check as many times as you like without affecting it
• Equifax offers free access via ClearScore
• Transunion (previously Callcredit) offers free access via credit
• Crediva through partner checkmyfile

To get the best overview of your credit history, we recommend that you get a report from all four, as they can differ between agencies. To do so, you’ll be asked to provide your full name, current address, and any addresses you’ve lived at over the last six years.

Your credit report contains a range of personal information, including:

• Your name, address and date of birth
• Any other names you may have had previously, such as maiden names
• Previous addresses
• Financial links you may have with other people - for example a joint loan or bank account
• Electoral roll details
• Some search footprints on your file, such as credit applications

It also contains details of any debts you have such as:

• Personal loans
• Overdrafts
• Catalogue credit
• Credit and store cards
• Some water and utility bills
• Mortgages and secured loans
• Hire purchase agreements used to buy cars or household goods
• Any late or missed payments or defaults
• Any County Court Judgments (CCJs) against you that weren’t paid in full within one month of receiving the notice
• If you’ve been declared bankrupt or entered an IVA (Individual Voluntary Arrangement)

It also contains other information supplied by the Insolvency Service and Registry Trust.

In general, negative information - such as late or missed payments, accounts sent to collection agencies or not being paid as agreed, or bankruptcies - stays on credit reports for approximately seven years.

We always recommend firstly contacting the source reporting any incorrect information. They have a legal obligation to make sure all the information they pass on to their chosen Credit Reference Agency is correct and as such should be able to make any changes quickly (where they agree an error has been made). If this doesn’t work – and the information on your credit report isn’t corrected - you can contact the Credit Reference Agencies themselves to challenge the information via a Notice of Dispute. This forces the CRA reporting the information to investigate the data and ask the organisation that lodged it to verify its accuracy. While this is being processed, a marker will be added to your credit report to let other organisations know that it’s under dispute. There’s no guarantee that the lender will agree, but it at least forces them to look into it again.

The Financial Conduct Authority (FCA) allows modelled or statistical data – such as the ONS Family Spending in the UK report - to be used instead of customer-provided values.

However, at Everyday Loans, we always refer to both sets of data side-by-side – along with face-to-face in-branch meetings, where possible – as part of our application review and approvals process.

We take the time to understand our customers’ needs on a human, personal level, which online processes and algorithms, and nationwide statistics, can miss.

So, whilst being very much committed to responsible lending, we also adopt a case-by-case approach and tailor each approved loan for each individual customer and we always ensure the repayments are affordable.

The data varies, but it can include comparing the customer’s declared household food expenditure against the ONS statistics. If the ONS number is lower, a lender may choose to take a ‘worst-case scenario’ approach and go with the higher value.

Conversely, if the customer’s estimate is significantly lower than the ONS figures suggest is normal, they might choose to take the higher value. Or they may use the customer’s value but flag the case for additional checks when it comes to underwriting.

The UK Government introduced Open Banking in 2018 to encourage more competition and innovation in the financial services sector. It allows you to manage the financial data your bank or building society generates from your bank account, so you can safely and securely use your own financial information when applying for credit.

You can find out more about Open Banking at www.openbanking.org.uk.

You can use Open Banking to authorise your bank to securely share your financial history with regulated companies like Everyday Loans.

If you don’t want to share this information, you don’t need to do anything, as Open Banking requires consent.

At Everyday Loans, we support customers opting into Open Banking as it helps us make a more efficient and informed lending decision. It also provides a clearer view of creditworthiness compared to traditional credit scoring, as it uses the most accurate and current financial data provided directly by you.

We then use this information when our customer accounts managers meet with our prospective borrowers face-to-face in your local branch.

By allowing Everyday Loans to view your bank or building society account transaction information, we’re better placed to make more informed lending decisions. It also means we can verify your income and outgoings to assess which loan term and amount will be most appropriate.

Using our Open Banking provider, Everyday Loans assesses what you can afford to borrow and all current financial commitments. We’re a responsible lender, so we want to ensure all loans are affordable and manageable.

To ensure our customers can afford repayments of a loan, we look at your transactional information. So, we’ll analyse your current account data to understand your income and expenditure.

We must make sure that any bills - household, mobile, subscriptions and rent, for example – along with credit commitments, such as loans, credit cards, car finance, as well as any discretionary spending don’t regularly exceed income.

It also means understanding the frequency of overdraft usage and whether you earn enough income to cover your bills.

As part of your loan application, our selected Open Banking third-party provider provides you with a secure portal for requesting consent and enabling the secure connection to your bank or building society.

Our Open Banking third-party provider will then provide us with your transactional information from your bank or building society for the permitted purpose of verifying your income, outgoings and creditworthiness.

Open Banking is completely optional and not obligatory. If you don’t want to use it, you don’t have to sign up. None of your current account or credit card information will be shared without your explicit consent. Opt-out is not necessary if you do not want to use the service.

Open Banking is very secure. You, as the customer and owner of your data, are the only person who can authorise any connection between your bank and a regulated third party. It means you never have to share your bank login details with anyone, just use them to log in to your online banking as normal.

A third-party provider is authorised by the FCA to access information and/or give instructions to make payments from an account operated by a Bank or Building Society - but only if the account holder as given them authorisation to do so.

It’s entirely up to you whether you share any of this information in this way:

• Information about your current account product, like if there’s a monthly fee
• Details of Direct Debits or standing orders
• Your account balance and day-to-day transactions
• The interest you’re earning or paying, as well as any charges

The better your score, the more likely that your loan application will be approved. Things such as previous credit applications or missed or late payments can have an adverse effect on your credit score.

We will inform you by email / in writing if we are unable to continue your loan application as a result of a search on your credit reference file. We recommend that you think very carefully before applying for more credit. All credit applications – successful or not – will show up on your credit file. Several in a short space of time might make lenders think you’re desperate for cash, which could damage your credit rating further. Your credit rating affects whether you can get credit and how much you can borrow. It can also affect the interest rate you might be charged. We can give outline feedback on why we decided to decline your application. You can also approach the credit reference agency to ask for a copy of your file.

Your loan application will have been declined due to a poor credit score, as well as it being clear to us – through reviewing your bank statements and spending habits – that repayments would be unmanageable.

The best way to improve chances of future loan applications being approved is to improve your credit score and adopt better money day-to-day money management, which you’ll be able to demonstrate through your bank statements.