High street banks and building societies are cracking down on new lending to previously credit-worthy customers using an early warning system, which assesses the chances of borrowers defaulting on loan repayments in the future.

Developed by Callcredit, the third biggest credit reference agency, the system assigns consumers an over-indebtedness score between 1 and 1,000, based on their credit history and current commitments, the change in the level of debt over the last 12 months and the ratio of debt commitments to monthly income.

Halifax and Lloyds TSB, owned by Lloyds Banking Group, HSBC, and the Royal Bank of Scotland have signed up to the initiative to identify borrowers who are on the verge of slipping into arrears on a mortgage or loan, receiving a County Court Judgment or becoming insolvent and therefore should not be given new credit.

Graham Lund, of Callcredit said: “We've been working with high street banks and building societies since 2004 to share current account data as a way of identifying consumers who appear to be on the cusp of over-indebtedness. The expansion of the initiative enables all lenders capturing and sharing application income data to gain a true understanding of their customers’ affordability.”

Under the new system, even prime borrowers with no history of defaulting could be rejected for a loan if their credit commitments take up too much of their income.

Chris Tapp, of CreditAction, the debt charity, said: “Borrowers might be up in arms about the kind of personal data which is now being exchanged, but if lenders are going to make wise decisions they need to access as much information as possible.”

Anxious banks and building societies are tightening lending criteria because of fears of a sharp rise in mortgage and loan defaults in the coming year. Over 900,000 homeowners have missed at least one mortgage repayment in the last six months, according to Moneyexpert.com, the comparison website, and the Council of Mortgage Lenders (CML) predicts half a million households will be at least three months in arrears by the end of this year.

The Insolvency Service released figures last week which showed that the number of individuals declaring bankruptcy jumped by 20 per cent in the last three months of 2008 compared to the same period the year before.

Bernard Clarke, of the CML, said: “Lenders are adopting a more cautious approach to risk generally and may be applying criteria more cautiously. There is a reduced appetite for risk so having reliable details about credit applicants enables lenders to make informed decisions about consumers.”

The Department for Trade and Industry, which is now the Department for Business, Enterprise and Regulatory Reform, defined an individual as over-indebted if 25 per cent of their net monthly income was used to pay debt commitments.