CREDIT – A personal overview
I feel there is much confusion over people's perception of their credit file held by various credit reference agencies and their attempts to borrow money at present.
Credit reference agencies are machines, whose businesses are mainly funded by lenders.
A person's credit file is only as accurate as the last lender's supply of information following a transaction between a client and a lender. Often this is inputted by a machine or occasionally a human being but who has little experience and very limited knowledge.
When a market is severely restricted, as it is now, lenders rely on machines to lend not human beings to lend. The theory being that machines make less mistakes than human beings
Lenders have no money to lend; therefore their appetite to lend is virtually non-existent.
There is no competition between lenders
There are very few lenders.
The ones that do exist are mainly owned by the government, you and me.
(Fred the Shred and his merry men succeeded in destroying the British banking system as we know it, with a little help from the likes of Lehman Bros et al, who lent to one armed unemployed illegal immigrant Mexicans who were encouraged to take out interest free, for one month, loans on valueless mobile homes. At the end of the interest free period a rate was charged which the said Mexicans could not possibly service and so defaulted on their loans. However, not before the likes of Lehman had shuffled and cut these tranches of loans into separate bundles to sell to the likes of Fred the Shred, and august pension funds, anxious to make money out of secure mortgage lending. The result as we now know was the virtual collapse of the world's banking system)
With this current situation much lip service is stated by government over the need for banks to get out and lend. But the banks have no money to lend because they have been told to improve their liquidity levels by government and European directives to protect themselves against future greed when the said Mexicans are encouraged to borrow against worthless assets at extortionate interest rates again.
The banks have no money to lend because in spite of government's quantitative easing which should have enabled banks to lend; they simply used the new money to buy government bonds in order to shore up their liquidity levels.
So the current situation of banks having no money to lend, no appetite to lend and no competition means that when lenders do deign to lend they cherry pick. So the only people who can now borrow are senior civil servants ,with index linked careers and index linked pensions whose credit rating according to the computer is impeccable. As we now know these people are about to be culled, leaving our lender nobody to lend to!
At this stage of the cycle banks are intent on shedding bad debt, shoring up their liquidity levels improving their net profits and improving their share value - not lending money. So frankly a person's credit rating is of little importance. But it is an ideal time for individuals to shed unsecured debt they struggle to service, just like the banks are doing, in preparation for the next great boom and lending and borrowing bonanza!
Already there are little green shoots appearing. My company had an approach the other day by a Chinese Bank who think mortgage lending in Britain will be a good money spinner, and they are looking to lend to people with some impairment on their credit file, some 90% of Britain's population, a big market, rejected by British banks at present, but there is nothing like a little competition to get British bank's appetite for lending back on track. So watch this space!!!
The moral of my story is at present don't borrow but shed debt, all in preparation for the next boom and please don't worry about the credit file and its rating.
I should hasten to add that this is a personal view but I'm happy to discuss any issues or offer advice around this topic, at any time.
Mike Gould TGBA a UKBA Group Member
Forwarded by David Lee of NGBA a UKBA Group Member
Mob: 07799 300 200