11 Dec 2010
More and more financial institutions rely on automated credit scoring systems when making lending decisions, but even these sophisticated systems can have trouble processing certain parts of your credit history, and it's then that you're likely to get a call from a human asking for an explanation
But this is no reason to panic about not getting the loan, and certainly no time to get defensive and hot under the collar. You may well have been very good about keeping your credit rating up by never borrowing more than you could afford and always paying your bills. But it is also quite possible that in the past few years you have made some payments ?late' and that these are showing up on your record. It is important to understand that what credit bureaux and banks regard as ?late' payments are those made more than 30 days after the due date on the account, and that most will require an explanation for such incidents, even if they seem minor to you. The best course in these circumstances, is always just to tell the truth. For example, if you genuinely can't recall why the monthly payment on a store card was made late once two years ago, say so. If you missed paying a telephone account because you were away on holiday, say so. Be honest if something happened that made you forget to post a batch of cheques one month. This sort of thing happens to everyone, and banks generally don't expect a perfect credit record. Usually what they want is just to obtain a reasonable explanation from you that they can fill in opposite any credit query that their automated system has thrown up. Those with really big credit problems in their past, such as bankruptcy or home repossession, should also be totally honest about it - and provide a full, detailed and documented explanation to their bank or originator before applying for a new loan. They should know that there is still a good chance of getting a loan if they can show with third-party verification that what happened was beyond their control - because of an accident, for instance, or because of a sudden serious illness or the loss of a job - and that their circumstances have now changed for the better. On the other hand, there is virtually no chance of a loan if they try to hide the earlier problems and they emerge during the bank's application evaluation process.