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Just how much does your bank know about you?
However much your bank knows about you it is probably more than you think, and it wants more information.
by Michelle McGagh on Mar 08, 2013 at 09:00
The days of your local bank manager personally knowing your financial circumstances are long gone and the information gap that is being left is being filed by reams of data from credit reporting agencies. But the banks aren’t happy with the data they have – they want to know more.
Credit rating agencies are the companies that feed the banks’, and even the government and insurers’, insatiable appetite for Britons’ details.
When you apply for a credit card or even take out a mobile phone contract, two things will happen. Firstly, the company you are buying from will access your credit file, which tells them whether you are a trustworthy person to lend to and confirms that you are who you say you are. The second thing is that you will give your consent to your information being shared.
Most people know that their credit report will be checked but because so few of us read the terms and conditions (T&Cs) we don’t realise that by signing on the dotted line for that new mobile phone, for example, we are allowing other organisations to view our personal data and build up a history of our credit.
They’re watching you
Building up a credit history is no bad thing, in fact you need to build one up in order to be offered loans and mortgages – those who do not have a credit history are known in the credit rating industry as ‘thin files’.
The credit ratings agencies probably collect fewer details than you’d expect, according to Neil Munroe, director of external affairs at credit rating company Equifax, although he added that Equifax ‘probably has information on everyone in Britain’. This information is taken from the electoral role and court orders; the former is a good way to establish a person is who they say they are and the latter to make sure they do not have any county court judgements (CCJs) or bankruptcies against their name – these credit checks are standard.
What is less well-known is that banks also share details of customers’ credit history through companies like Equifax, and even share information on customers’ income.
Munroe said one of the main problems banks have is that people do not use just one bank or provider so it is harder for them to build up a whole view of their liabilities so they share with other banks to fill in the gaps.
‘The banks have been doing [income sharing] for a while, where they share current account details – they look at what goes in and that is usually income,’ he said.
The sharing of income information was set up in response to calls for more responsible lending, said Munroe.
‘Under the financial stability rules the banks are trying to build a model, if they give someone a mortgage they need to know how stable they are and have the confidence that they won’t default on the loan,’ he said.
While this sharing of information may seem intrusive, it is worth noting that the banks are not allowed, under the Data Protection Act, to use the information to market products to consumers, purely to pinpoint indebtedness and for ID purposes. However, other than the Data Protection Act there is no fine detail regulation around the sharing of this information and the industry is effectively self-regulating.
Feeding the banks
Credit rating companies and banks are able to build up a pretty rounded picture of your liabilities, how you pay your bills and how much money is coming into your account each month. What they don’t have, however, is a picture of your assets – and for banks this is the holy grail of information.
If a bank knows how much money you have they it is able to market and cross-sell to you more effectively. The problem is, again, that most people have their money in different places.
‘Big banks want to have a better understanding of your overall standing,’ said Munroe. ‘The problem is everyone is moving assets around so the banks do not have a central view…If a bank knows a customer has money deposited elsewhere they will want to get that money moved over [to them].’
There are a number of ways the credit ratings agencies are trying to build up this asset picture. The quest for information is starting at the Land Registry, which is a public resource and through it credit rating companies can see if the property has a mortgage and make an estimate on how much equity the homeowner has.
Whether you pay your utility bills is also a good measure of credit-worthiness, according to Munroe.
‘We have seen some increases in alternative data, such as utility data. Gas and electricity are a major outgoing and very important – lenders have always used it to establish the affordability of a loan so if people pay their utility bills regularly that will prove they are credit-worthy,’ he said.
Munroe said Equifax is also keen to gather payday loan data as a way to build up a credit file. Although he said some companies disregard potential customers on the basis that they have taken a payday loan he believes that the data is still suitable for judging credit-worthiness.
‘There are people who are in trouble who have to turn to payday loans but in order to get one you need to have a job and a bank account,’ he said. ‘If people are paying back these loans it should help their credit rating.’
While it may seem that banks are building up ever-increasing details about us, Munroe believes that the difficulty in accessing the all-important information on assets will result in a shift in power. At the moment businesses share information with other businesses but if those businesses want to build a better picture of a person’s asset they will need to start negotiating with consumers.
‘There will be a shift away form businesses sharing information to consumers sharing information with businesses,’ said Munroe.
The upshot of sharing your data with businesses will be access to better deals, special offers and ‘monetary benefits’, said Munroe.
‘People are already selling their data and young people know how valuable their data is. The concept of data ownership will be very different in five or 10 years.’
Your credit report: the myths
Credit check company says ‘no’
Often the banks will blame the credit rating agency for turning down consumers for a loan or credit card, but in fact the banks are the ones that set their own lending criteria – the credit agencies just let the bank know whether you fit the criteria or not.
‘A lot of lenders tell consumers that the credit reference agencies say there is something on their file but most of the time there is nothing wrong with the file, the lender has just changed their criteria and they need to be more open about that,’ said Munroe.
It’s in the detail
Many people mistakenly believe that their credit rating is based on more information than it actually is. Quite often people assume council tax payments and parking fines make up their file but in reality it is the electoral register, court judgements lists and bank information that credit agencies used to judge credit-worthiness.
Too many checks
Constant file-checking leaves a black mark against your name. This is only partly true. Every time your file is checked it leaves a footprint but the footprints are very different types and each lender will determine which footprints matter to them.
‘If you have five credit searches in two days a lender may assume that there is fraud,’ said Munroe, for example someone may be trying to take out multiple loans.
‘There are factors that do not impact your file. Quotation services are quite common, when people go to a lender to get a mortgage to see if they can get one in principle; that doesn’t get counted as a credit search but when they go to take out the mortgage that does count as a credit search.’
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