Yahoo! Finance, 21st July 2013 | ‘Perfect’ borrowers rejected by credit card firms
Yahoo! Finance recently reported that lenders are damaging the credit scores of credit card applicants due to their secret scoring profiles.
These profiles are designed by lenders to filter out unsuitable candidates, but as well as filtering out those who are unprofitable, are also rejecting those with perfect credit ratings if they do not fit the model, resulting in damage to their score.
Each lender creates a secret formula outlining the type of borrower they want, and the applicant’s details are fed into the formula to produce an inflexible, computerised ‘yes’ or ‘no’ result.
Research undertaken by Which? found that 80% of rejected applicants since 2011 were not given a specific reason for the rejection. A spokesman for Pancredit, the company selling this decision-making software to lenders, argued that their system simply ‘speeds up this process’. However, this computerized assessment is responsible for rejecting up to 5 million applications each year, and whilst it is the right of the lender to reject credit, every rejection stays on credit reports for up to 6 months and so can seriously affect the credit rating of an individual.
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Freedom Finance has responded to this worry by offering a soft footprint service to protect credit rating. This is a way for the consumer to check whether or not they will be eligible for a loan before a formal application is made.