The computer says no and misplaced loyalty

By Catherine Lezer
A huge change has taken place in banking technology.  Some banks, not all, now use computers to make the decision whether to lend to you or not.  Ho hum I hear you say, computers have been deciding on credit cards and personal loans for years.  True, but the algorithm used for deciding on a property loan is very different and only started being used in 2010.
Not only does the computer go and check your credit score at Veda, but it uses information you tell it on the application form as well as the information it already holds on you if you are an existing customer and crunches all this data in a clever algorithm which then spits out “approved” or “declined”.
It is in fact a closely guarded secret exactly what makes up the algorithm.  The closest I have been to knowing is when a bank told me it has 79 data points, but wouldn’t disclose any individual one.  Each bank has a different algorithm as does each mortgage insurer.  
I have been submitting loans to these algorithms for a few years now, and have gleaned a few big hints for you:
  • Moving addresses too frequently detracts from your score. 
  • Moving employment too often can be very bad.  I had one customer the bank just would not consider until he had been at a job for 12 months, after job hoping for the previous 3 years.
  • Always put down on the application form the small details they ask for, emergency contact person details, how much super you have, if you have life insurance and how much, how much your personal belongings are worth: “contents” in bank terms, your car.   The algorithm likes lots of data and doesn’t like missing data.
  • Phone numbers are important.  Some banks detract marks for only putting down the mobile,  a home phone and work number should be listed if possible.
  • Drivers licence, state and expiry date are important.
  • Your Veda score is heavily weighted, perhaps the most important data point.  But it’s not just people with defaults or discharged bankrupts who have trouble here. It’s also people with more than 6 enquiries on your Veda in 6 months or more than 20 in 5 years.  An enquiry is counted  from any credit provider too, not just banks, but from telco’s,  credit card companies, interest free ipad purchases and so on. 
  • All your savings accounts with BSB & account numbers need to be supplied.  Banks know you have at least one and they expect at least one credit card too.  
Which brings me to the point about misplaced loyalty.   This is best illustrated with an example. Let us say you are a loyal XYZ Bank customer since you were eight with a “dollarmite” account.  You rightly feel loyalty towards them as you have had this long relationship.  And let us also say that at 18 you overdrew your account twice when you got your first job and once when you moved at 25 a few direct debits weren’t paid.  A normal human occurrence: this can and does happen to just about everyone.  Now in your 30’s you have a natural impulse to apply to XYZ for a property loan.  
What does XYZ computers do?  The data stored on you is attached to your customer number, it finds your complete history and sees the 2 overdrawn dates and the direct debits that went astray.  You get marked down in the algorithm.  This is not to say it will be enough to decline the loan, but that is yet another of the 79 data points used to make the decision on how likely you are to pay back the loan.
As you can see, you can be loyal to them, but they don’t necessarily return the favour.
This is not all bad news, since if you know or suspect this may impact you, then discuss with your mortgage broker.  They can guide you to apply at a bank without an algorithm in need.

Property is Catherine Lezer’s passion. She owns nine properties of her own and has a fundamental understanding of how the property market works. 

“I’ve bought some great properties and some ‘bad’ properties, and even the bad ones have made me money,” says Catherine. “Property is the most reliable way to make money that I know!”
“I’ve purchased, sold, tendered, offered, negotiated, won and lost at auction, developed and renovated so I understand what happens out there in the market,” she adds. “Being able to help other people finance property is an added bonus for me.”
Originally from Perth and now based in Sydney, Catherine joined Smartline in 1999 with over 25 years of banking experience and qualifications include a Bachelor of Business and an MBA. Catherine has helped hundreds of clients finance houses, semis, terraces and apartments, with the majority of her business coming from word of mouth referrals.