Payday loan refunds – do credit scores matter?

If you are asking for a payday loan refund, your credit record is often important and the Financial Ombudsman will normally ask for a copy of it.

Recent problems with credit such as late or missed payments, defaults or CCJs and high levels of other debts should have shown a payday lender that you were in trouble.

But you can get a refund with a good credit record! In many cases people carried on borrowing for month after month from the same lender because they were scared to damage their credit score. here the lender should still have noticed the repeat borrowing.

Some lenders may dismiss your complaint mentioning your credit score and you may be uncertain what to do next. Does this mean you only have a weak case?

This article looks at typical questions people ask.

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“Can a lender give a loan if you have a bad score?”

There isn’t a simple test such as “more than 650 is acceptable”.  Payday loans aren’t aimed at people with perfect credit records, so a lender wouldn’t be expected to reject an application only because:

• you had defaults several years before and no recent problems; or
• you just had a couple of late payments the year before.

But they should have noticed recent credit record problems, especially if you were borrowing a large amount in relation to your income.

And if you carried on borrowing, then the lender should have looked at details such as the amount of debt you already had and what your expenses were.

“The lender says they didn’t have to credit check me – is this right?”

Lenders used to be regulated by the OFT and only had to undertake “proportionate” checks on affordability before making a loan. As payday loans are quite low value, there was no legal obligation to check credit records. Some lenders such as Wageday Advance didn’t used to do credit checks.

Since 2015 credit checks are now routine before lending.

You can still succeed with an affordability complaint even if the lender didn’t credit check you. You are complaining that you were given an unaffordable loan, not that the lender didn’t make the correct legal checks.

Checking your credit record is only one way that a lender could have realised that you were in difficulty and dependent or regular borrowing. The lender still had to take notice of the other information that it had, so if your history of borrowing from that lender showed you were likely to be dependent on these loans that is an indication of unaffordability.

“How do I send the FOS my credit record?”

In 2017, the Ombudsman started to ask everyone making a payday loan affordability complaint for a copy of their credit record.

You are being asked for a copy of your current credit record – there is no way to generate what your report would have looked like several years ago. If you are one of the few people who do have an old credit report, send that! The Ombudsman will be happy to use that, but they aren’t expecting it.

Your current report will show the “bad things” that happened up to 6 years ago.

If your borrowing was even further back, there may be little or no traces remaining on your credit records now. Defaults and CCJs drop off your record after six years.  See if you have other information about old problems (court papers, emails, letters from lenders or a debt management company?). Show your adjudicator these and point out they would have been showing on your credit record back in 2011 when you took out the payday loans.

The simple way is to get a Noddle credit report. This is free and if you are using a desktop or laptop, you can download it as a pdf to email to your adjudicator. If you are having trouble doing this, you can ask for a CallCredit statutory report to be sent to you – this is also free.

If you are making an affordability complaint about other types of debt – Provident, high-interest longer-term loans, logbook loans, guarantor loans, the credit limits on your credit cards/catalogues/overdrafts etc then you should send your adjudicator a credit record even if you aren’t asked for one!

For more about FOS cases, read What happens at the Financial Ombudsman?

“Why do my payday loans show on Noddle not Clear Score?”

There are three main Credit Reference Agencies (CRAs): Experian, Equifax and Call Credit. Lenders can choose which CRAs they want to report to – some lenders report to one, some to two, some to all three.

Find out how to check your records with all three CRAs. Noddle is the free version of Call Credit. Clear Score is the free version of Equifax. If a lot seems to be “missing” from one credit report, get your credit reports from the other CRAs as well.

I recommend Noddle because more payday lenders report to CallCredit than to Equifax or Experian – and you want a credit report that shows as much of your borrowing as possible.

“I’m worried because my credit record is bad”

Some people worry that the ombudsman may decide they were bad with money so it’s their fault they took the payday loans. Actually, the reasoning works the other way!

If you have defaults or arrangements to pay on your credit record this SUPPORTS the fact that you couldn’t afford the payday loans. If your lender saw credit records with a lot of problems, this should have been a big warning flag not to keep lending to you.

This doesn’t mean you are definitely going to win your complaint, but it helps. The ombudsman has to decide if you afford the loans and also should the payday lender have realised this? If your lender credit checked you and saw a bad credit record that helps prove the second.

“I’m worried because my credit record is good!”

You can win a payday loan affordability complete with a perfect credit record. You may have borrowed because of some urgent need and then couldn’t afford to repay it. But you could have been too scared to default, so you kept repaying and reborrowing, sometimes for years.

Repeated borrowing suggests the lending was unaffordable and you have become dependent on the loans, regardless of whether you have a good credit record or if the income and expenditure you supplied suggest the loans were manageable.

“Lender says my credit score was good but it wasn’t”

If a lender quotes an absurdly high credit score for you (Lending Stream often does!) just ignore it and point out to the Ombudsman that their score can’t possibly be right.

Find out what the lender has in their records

If you want to know what your lender actually saw, one approach is to ask them. You can send the lender a Subject Access Request(SAR) saying that you would like copies of all credit record and other verification checks the lender made. Send this request separately from your affordability complaint. If you put the name of the lender and the word privacy into Google, you will normally get to the page on the lender’s website that tells you where to send these SARs to.

Don’t delay sending your complaint to the Ombudsman while you are waiting for this SAR information. You can always add more to your ombudsman complaint later.

Often a SAR won’t show anything useful as many lenders haven’t kept the details!  In this case, the ombudsman doesn’t usually give the lender’s assertion that your score was 625 much weight as there is nothing to support it.

What CRA did the lender use?

You can also ask the lender which CRA the lender checked your details on. Then get a copy of your credit record from that CRA and see what it says. For example if your lender only checked Experian and you had a default which only shows on Call Credit, the lender would not have seen this default.

Bankruptcy, IVAs, DROs and CCJs would have shown on all three CRAs. If you had any of these major problems the lender should definitely have seen it!

Their own scoring system

Lenders don’t use the same “credit score” that is reported to you. A lender who says your Experian credit score was 700-750 paid Experian to calculate a score for them but this isn’t the same calculation Experian would have reported to you.

This is a complication but if you know your credit score from a CRA would have been very poor, the lender’s score should not have been good! They won’t be exactly the same but they shouldn’t be a long way out.

Don’t be put off by the lender sounding as though they have a great bit of technology. For example Myjar sometime refer to their “advanced algorithm for underwriting loans”. The ombudsman never seems very impressed with this – if the loans look unaffordable, the algorithm can’t have been much good.

“How much will my credit score go up if payday loans are deleted?”

A common award when a complaint is upheld is for the unaffordable loans to be deleted from your credit record. For some people this is the most important thing they want.

It’s not possible to say how much your credit record will improve after a deletion:

• deleting payday loans which had defaults or late payments will have a positive effect;
• if there are still a lot of other big problems on your credit file, the positive effect may only be very small;
• deleting payday loans which you paid on time doesn’t make much difference to your score;
• if you have very little on your credit record after the loans are deleted, it is even possible your credit score may drop! That would be quite unusual;
• every future lender does their own scoring. Some lenders may care about you having used payday loans so getting them deleted will help. Other lenders don’t mind about payday loans. Payday loans make it harder to get a mortgage but many lenders don’t mind if you have payday loans older than a year providing that they were repaid on time.

Any other questions?

If you have any other payday loan/credit record queries, ask them in the Comments below! And don’t forget to look at the comments on the main payday refund article – there you can see how other people’s affordability complaints are going.

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