Credit scoring
Credit scoring helps the creditor decide whether to lend you money, and for some products (such as credit cards) what your credit limit and interest rate will be.
What is credit scoring?
When you apply for credit, such as a credit card, a loan or an overdraft, the creditor (the organisation offering the credit) will usually credit score your application.
Credit scoring works by awarding points based on the information:
- you provide on your application form;
- the creditor may already have about you, based on previous accounts you have with them; and
- on your credit report (which you can check with a credit reference agency).
Creditors use all this information to try to predict how big a risk they are taking by giving you credit and whether you can afford to repay it.
If you don’t score enough points to reach the creditor’s pass mark, the creditor may:
- turn down your application;
- offer to lend you a smaller amount than you were hoping for; or
- charge you a higher rate of interest.
Each creditor has their own scoring system, but you’ll generally score more points if you:
- have a permanent and secure job;
- own your own home and/or have lived at the same address for at least a year;
- have a good credit history by repaying other credit agreements on time; and
- are married or in a civil partnership.
However, you certainly don’t have to be all of these things to be accepted for credit. Creditors create their points-scoring systems based on how their past customers have repaid credit.
Although having a good credit history will improve your chances of getting credit, having existing credit can count against you if you:
- already have a large number of loans and credit cards;
- regularly make minimum repayments and have high outstanding credit card balances; or
- have made lots of different credit applications recently.
This is because creditors are increasingly being asked to make sure that they lend responsibly by identifying when a customer might be at the point of borrowing more than they can afford or getting into difficulties with existing borrowing.
Shopping around
When shopping around to get quotes for the cost of credit, some may depend on your credit score. So before giving you a quote, a creditor may want to check your credit report. Make sure you ask the creditor to register a ‘quotation search’ on your credit report instead of a ‘credit application search’. Creditors know that quotation searches do not represent actual credit applications, so they won’t harm your credit score in the future.
What if they turn you down?
Creditors won’t go into detail about how their scoring systems work, but if you are refused credit you can ask them to tell you the main reason – which could be because of credit scoring, because of information on your credit report or because the creditor believes you can’t afford more credit.
If the creditor refuses your application because of credit scoring, you have the right to ask them to review your application ‘manually’. This means that a person (called an underwriter) will look through your application and reconsider it. It may help if you can send them other information to support your case. This could include bank statements, which show your income and spending, and other regular bills you have paid on time such as Council Tax.
If the creditor refuses your application because of information on your credit report, you can check your credit report yourself to see what’s on it. It may help to ask the creditor for the name and address of the credit reference agency that provided the information on your credit report. You should write to the creditor within 28 days of your last contact about the credit deal. They must tell you the agency's name and address within seven working days of getting your letter.
