Understanding Credit scoring
What is credit scoring and how does it affect me?
When you apply for a current account, credit card, personal loan, hire purchase (HP) agreement or mortgage, or any other form of credit, the lender will usually credit score your application to assess the risk on there behalf.
Credit scoring works by awarding points from the information you provide on your application form and to the information recorded on your credit report. The questions on an application form are designed to help the lender to assess your creditworthiness. Credit scoring uses all this information to try to predict how big a risk the lender is taking by allowing you to borrow money but not all lender use credit scoring.
If your total score reaches the lender's pass mark, they will probably offer you credit. If you don't score enough points, the lender may:
- Refuse your application
- Offer to lend you a smaller amount than you first applied for
- Charge you a higher interest rate
Each lender has their own scoring system they use, but you’ll generally score the better points if:
- You have been employed longer at your job
- You own your own home and/or have lived for a while at the same address
- You are on the Electoral role at your current address
- You have a good track record of previous credit you have taken out
- You’re middle aged rather than younger or older; and if you’re married
What if your application is turned down by the lender?
Lenders 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 why it wasn’t accepted – which could be down to credit scoring or because of information on your credit report. They have to tell you the name of any credit reference agencies they used.
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