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Credit scoring

What is credit scoring?

When you apply for a credit card, current account, personal loan, hire purchase (HP) agreement or mortgage, or any other form of credit, the lender will usually credit score your application. This helps the lender decide whether to accept your application and, where relevant, helps set your credit limit and interest rate.

Credit scoring works by awarding points to the information you provide on your application form and to the information recorded on your credit report (held by a credit reference agency). 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. It often helps them decide:

  • whether to give you a credit card or loan;
  • what credit limit to give you; and
  • what interest rate to charge.

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:

  • 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 lender has their own scoring system, but you’ll generally score the most points the longer you’ve been in a job; if you own your own home and/or have lived for a while at the same address; if you’re middle aged rather than younger or older; and if you’re married. However, you certainly don’t have to be all of these things to apply for a loan.

The information on your credit report is very important and having a good credit history will improve your chances of getting credit. Someone who has had a credit card and pays all their regular bills on time may score more points than someone who’s new to loans. On the other hand, it can count against you if you already have several loans and credit cards, or if you’ve made lots of different applications recently.

If you’re not on the Electoral Roll the lender might refuse your application. This is because lenders use it to confirm your name and address.

What if they turn you down?

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 – which could be because of credit scoring or because of information on your credit report. They have to tell you the name of any credit reference agencies they used.

For more information on how your credit report works visit the Credit reference agencies section.