“High Level of Borrowing” – How Tesco Bank explains it

TheKeyMaker

“High Level of Borrowing” – How Tesco Bank explains it

I have recently applied for a loan with Tesco and was refused “because credit information from Experian indicates that you already have a high level of borrowing”.
Knowing that my current financial commitments (debt) are around 10% of my total annual salary, I have looked into my Experian report which turned out that didn’t contain any information about my 2 addresses for the last 6 years, and all financial activities related. Basically, I have used Experian last time 6 years ago, and since the time I have cancelled my membership in 2007 no updates have been made to my file. Talking to Experian, they have said that I should update my information by adding my last 2 addresses for the 6 years period, and that next day I would have an update credit report.
Needless to say that I have to renew my membership with Experian; next day I have looked at my report which from Poor (672) had jumped to Good (898) – I know these magic numbers mean nothing, but just for illustration. Going through the content at, at the time I didn’t see anything which rang bells: registered to vote, no late payments, no ccj’s, etc., - all greens.
I have decide to appeal, and sent an explanatory letter about my Experian report, payslips and bank statements. Today someone from Tesco Bank calls me, and said that they were very sorry but unfortunately they could overturn the initial refusal decision; I asked him to translate into normal language what meant “high level of borrowing”, since I knew that my debt is around 10% of my salary. He was quite a gentleman and explained to me that, that this expression has 2 components: a) The level of borrowing as a ratio of salary against existing total debt (excluding mortgages); and b) the usage of the credit facilities available to me, which is the criteria I have no passed.
My job makes me travel overseas about 60% of my time. I had a company credit card American Express to pay my business expenses, but the countries I travel now don’t accept Amex cards. As a temporary arrangement I have been using my own credit cards exclusively for businesses expenses and the company would pay the entire bill including interest. I’ve just realized now, that this arrangement made the usage of my credit available on cc’s very high: around 75-85% in my report. As it was explained to me, this is a signal that I’m currently overusing my credit lines, which means that already struggling.
Although I completely disagree with this interpretation, since we are talking about 10% of my salary, the rationale behind this doesn’t makes much sense to me, but that is their policy.
Clarifications:
- I have chose to apply with Tesco, because the projected interest suggested by my bank was too high for me; I didn’t apply, they just did run a soft search
- The total amount of the loan I wanted, would take my total debt to 25% of my salary.
My question is (finally…): I can reduce the level of usage of credit available to me to 0%, and once credit report updated, I would apply with another lender (it will be just a 2nd Search in my report in the last 8 months); will the lenders consider just the last ratio of usage, or their assessment is for a period of time, let say for the last 6 or 12 months?

Thanks in advance, and sorry for long text.

tlh858

You have probably been declined because your existing card is paid in full every month. Therefore, no interest is due and you wouldn't be considered to be a profitable customer.

You do NOT need to 'renew your membership with Experian'. That and the similar offerings from other credit agencies are a total waste of money. Giving them money won't change anything about your credit history.

Eonel

Mainstream lenders do not reject people who pay off their account each month as unprofitable. Lenders earn a margin on every transaction you make, so do not rely on you paying interest to make a profit.

OP - Tescos are interpreting the regular use of you credit card incorrectly. They are not recognising that you pay a large amount each month, only that at the end of each month you have a significant balance.

One thing that does not make sense from your post is that you are using your personal card for business travel as well as running a personal balance? If only the business travel is paid each month, then the card is not paid in full & your company pays unnecessary interest?

I would expect that if you reduce the balance of that card down to zero for a couple of months the problem will go away. That would demonstrate you have paid the debt, without transferring it anywhere else.

The other way to resolve the situation is to increase the credit limit on your card. That would dilute your used credit ratio, and as you do not have any other debt it my not make your available credit ratio a problem.

bengal-stripe

TheKeyMaker wrote: »

I have recently applied for a loan with Tesco and was refused

tlh858 wrote: »

You have probably been declined because your existing card is paid in full every month. Therefore, no interest is due and you wouldn't be considered to be a profitable customer.

It was a loan the OP applied for, Mr Conspiracy-Theorist!

TheKeyMaker

Scanning through the relevant replies and content above, am I correct to assume that:
1. If I reduce the usage level of my credit on cc's, by paying up (preferred) either increase credit limit and keep that pattern (low usage) over the time, lenders with criteria similar to Tesco Bank could be more favorable to my loan applications?

2. The length of the time to show that I've changed my borrowing pattern (reduced) depends of lenders criteria?
- I assume that it will take a while though; my wife has a "perfect" (sic) credit record, and her Experian report mentions as one of positive factors:
"Your borrowing on regular instalment credit has reduced over the last 12 months"

InsideInsurance

The utilisation rate is a fairly significant one for most lenders as if your approaching limits then irrespective of salary it suggests that your spending is out stretching your income.

Simply reducing spending is one option and the best one.

Increasing limits is an option but a more complex one. Lenders do generally like it when they see other lenders are trusting you with higher limits but at the same time their affordability calculations will take into consideration the situation of if you maxed out all of your available credit so this can be a double edged sword depending on how many accounts you have etc.

How long? A minimum of 3 months (this worked for me with Amex), 6 is a much safer number and 12 months is the ideal