What is in a "credit score"?

Published ¤ 31/05/2012 12:09:59

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When applying for credit - credit cards, loans, mortgages, even mobile phones - most companies carry out a "credit check". They will apply to one of the credit reference agencies (Experian and Equifax being the main two) for details of your credit history. Some companies also use a credit "scoring" system to determine whether or not to offer you credit.

What is a credit scoreSo, how do the lenders calculate the credit "score"? Unfortunately this is not as easy as it sounds, as each lender uses its own methods to create the score. Not only that, but different lenders use the scores in different ways.
So, how can you find out what your credit score is?

Unfortunately you can't as each lender uses different criteria. The credit reference agancies (CRA) will provide you with a credit score, FOR A FEE. However, this relates IN NO WAY to the score a lender would give you. In fact, the scores from the CRA can be VERY MISLEADING.

For instance, Experian provided a score of "959 - Excellent" to one of our clients. However, when we obtained their full credit file, it showed a number of missed credit card payments, some of which were in the last 2 months, and 2 defaults, registered in the last 2 years.

If we had relied upon the score, our client would almost certainly have been declined by most mainstream lenders. Fortunately, having seen the full report, we were then able to place our client's application with a company that could consider her situation.

Things that affect your "score" would be:

  • The length of time at your address
  • Being registered on the electoral roll
  • How many "accounts" you currently have
  • How many applications for credit you have made recently
  • How many missed payments (mortgage, loans, credit cards etc)
  • Any defaults registered against you
  • Any CCJs registered against you
This list is not exhaustive, and there are many other situations that can affect your score.

So, although the credit reference agencies are supposed to be there to support lenders, and reduce fraud, beware, as some of the information they provide can be misleading, or even completely innacurate. Always obtain a copy of your full credit report, and discuss it thoroughly with your adviser before applying for any credit.

Remember, a failed application can also adversely affect your ability to obtain future credit.


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