Credit Scoring

When you apply for credit, lenders usually use a system of credit scoring to help them assess the information you have given them on your application form along with information they obtain from credit reference agencies. Lenders don’t want to say "no" because credit is their business, but they have to make sure that you can afford any new repayments and also that you been able to demonstrate an ability to repay credit in the past.

"Credit Scoring" allows lenders to determine whether or not you fit the profile of the type of customer they are looking for. It works by comparing your details (such as your previous credit history, job and salary) with those of previous customers who have paid on time. Your score is worked out using a computer-based ‘scorecard’ which awards your application points, according to the lender’s own criteria and lending policy. Many see credit scoring as a quick, fair and objective way of deciding whether to accept or decline credit applications.

If you have been refused credit, you should be told if a credit reference agency was consulted (and be given their contact details) as well as whether or not your credit report adversely affected your application. If you are refused credit, under the Data Protection Act 1998 you have the right to ask that your application is assessed manually (i.e. by a person not a computer). Although you have no legal right to credit or to a detailed explanation of why any application you make is turned down, credit industry codes of practice encourage lenders to at least tell you the principal reason behind their decision.

Lenders are understandably wary of revealing details of exactly how their scorecards work – this might make fraudulent applications easier, for example – but they should be prepared to give a broad explanation of how your application was assessed and tell you the main reason for their decision.

Experian, one of the UK’s main credit reference agencies, produces a series of free guides, called Credit Crossroads, under its consumer education programme.

You can download a copy of Credit Crossroads HERE