Secret tips that let you beat the credit guard

Jobs & Money this week lifts the veil of secrecy wrapped around the credit scoring systems used by every major financial institution - and which results in one in four applicants being denied a credit card, personal loan or mortgage.

Credit reference agency files have long been available for the public to check, but they make up only a part of the "scorecard" used to decide if someone is a worthy risk. Equally important are in-house credit scoring systems which point-score on a wide range of factors.

These systems are stamped top secret because banks fear that if they are opened to the public, they will be at risk of abuse and manipulation. But this week a major high street bank - it refused to allow its identity to be disclosed - opened its files to Jobs & Money.

The bank, which has more than 50 credit products in the market, regularly rejects around 25-30% of applicants. Its scoring system reveals that having your name on the electoral roll is crucial; if it's not been there for the past year, you may as well forget trying to obtain one of its alluring low-rate deals.

Moved address more than twice in the last three years? This also puts you in the doghouse. Are you a high-flyer building a career by hopping from one job to another, watching your salary jump up every time? It's good for your bank balance, but not so good for your credit score.

The bank's head of credit scoring says: "The whole thing is driven by mathematics. There is no question that instability in employment and housing is an indication of a higher risk customer. It is not surprising they score at a lower level."

As the case studies reveal, good pay is no guarantee of credit. Credit scoring systems can check only verifiable information held on accessible databases. Give your salary as £100,000 a year on a credit card application and it makes little difference to the assessment. Only in mortgage applications is salary essential.

If rejected, it's wise not to keep on applying elsewhere; the credit reference agencies, while not identifying whether you were accepted or turned down, put a note on your file that you made an application. The bank says that if it sees more than six ticks in that box in the last three to four months, it will automatically refer your case. In the language of the trade, they steer clear of the emotive word rejection. Instead you will be declined.

It's also wise not to respond to a junk mail offer too soon; earlier applicants are more likely to be rejected, says the bank. "The first people to apply are the most desperate," it says. Records show early applicants are more likely to default.

The good news is that if you appeal against a rejection, you are likely to win. The bank finds that outraged rejected applicants usually have a good case, and can provide documents about their financial profile.

The outraged are not normally the former bankrupts, fraudsters or those who know they are already too deeply in debt. They are more likely to be the job and address hoppers (disproportionately represented in the IT and media industries) who have fallen off the electoral roll, but have perfect credit histories.

The electoral roll is the major faultline in credit scoring systems. Local authorities compile the roll, and use residence on October 10 as their base. The banks check personal identities against the roll held at a credit reference agency, but the agencies cannot guarantee to have the full data in place from local authorities until the follow ing April. So someone who moved home in November last year could have to wait until May next year before their credit score improves.

Too often applicants rejected by lenders, apart from feeling humiliated, are left in the dark about any problem. Experian, the largest credit reference agency - it processes 80m credit checks a year - says: "We find it irritating that people are told or implied that a rejection is to do with our files, when it's to do with their credit scoring." Around 1m people a year pay £2 to Experian to personally check their credit file, but only a tiny number are incorrect.

Experian is pushing for wider use of guidelines in the Guide To Credit Scoring 2000 which came into force in March this year but has so far been applied only loosely. Under the guidelines, lenders must tell an applicant the principal reason why they have been declined - but only if the applicant asks.

In the US, credit scoring is a hot political issue, but it rarely hits the headlines in Britain. This is partly because computerised scoring has replaced a worse alternative - when local bank staff might have asked the milkman whether an individual was keeping up with his or her payments.

Malcolm Hurlstone of the Foundation for Credit Counselling says: "Credit scoring is generally less obtrusive in comparison with the old days. Its relative remoteness makes it a pretty painless process."

However, recent developments at Barclays and Abbey National's net subsidiary Cahoot promise to move credit scoring up the agenda. Both are piloting schemes in which the interest rate you obtain for a loan will depend on your credit score.

In the US, where credit scoring has a longer history, each individual has a "Fico" score of up to 900 points, where 640 points is the gateway to borrowing. Under pressure from the California Senate, credit agencies are now releasing details of the previously secret scores to individuals.

One result is that dating agencies are considering adding an individual's credit score to the profile of potential partners, while a website has already sprung up on the internet which gives you advice and counselling if you score 666.

Your Credit Decision Explained and The Guide To Credit Scoring 2000 are available from the Finance and Leasing Association, Imperial House, 15-19 Kingsway, London WC2B 6UN. Tel 020 7836 6511.

For a copy of your credit reference agency file, write to Experian, Customer Help Service, PO Box 8000, Nottingham NG1 5GX or Equifax, Dept 1E, PO Box 3001, Glasgow G81 2DT. Enclose a cheque or postal order for £2.