Credit Scoring Explained

Everything you need to know about credit scoring

There has been a lot written about credit scoring. Most of this is based on personal experience, assumptions and hearsay. We, at stoozing.com, would be the first to say that sharing information and personal customer experience is immensely valuable, but we felt that there was a real need to get the view from within the industry rather than from the outside.

To research this article we have spoken to the leading Credit Reference Agency (CRA), Experian, and to an industry professional who has worked for both a CRA and for a number of financial services companies. He is currently responsible for defining credit scoring policies for a lending portfolio (not credit cards). Most of the information in this article comes from the latter.

There are three things that make this article different from any other on the Internet:

• it is written specifically for stoozers and rate tarts,
• it is based on information from a CRA and a lender and
• it is written from a UK perspective. We think that this will be a valuable resource for all stoozers and rate tarts. Read on!

Although this article contains a detailed insight into credit scoring, it is important to realise that each lender has their own criteria for making lending decisions and will have their own policy rules. This is why it can sometimes seem like a bit of a black art. While we hope to demystify credit scoring, this can only be used as a general guide.

Who is involved in making a lending decision?

There are normally 3 parties involved in a lending decision

• The borrower who is applying for a credit card (i.e. you or me) completes an application form, which provides the lender with lots of information about the applicant. This information is all entered into the credit scoring process.
• The lender i.e. the credit card company. When making a decision whether or not to lend money to you, the lender needs to establish that you are who you say you are, whether you can handle the credit that they might offer, whether there is a risk that they will lose money if you can not pay it back, and whether you are likely to be a profitable customer. In order to do this, they will give you a credit score based on the information that you have provided on your application form together with information that they obtain from a CRA. When a lender requests information from a CRA, it is known as a "credit search" or "credit check".
• The CRA's collate information from various sources including the electoral roll, other lenders and publicly available information such as County Court Judgements, Bankruptcies and IVAs (Individual Voluntary Arrangements). They use this information to tell the lender that you are who you say you are and to provide them with your credit history. If required, a CRA can also produce a credit score for the lender, but most lenders in the UK do their own credit scoring.

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