Credit Scoring - The insiders guide

What does a lender see as being 'good' and 'bad'?

To be blunt about it, a good customer is someone who makes the lender money and a bad customer is someone who does not. A customer is even worse, of course, if they cost the lender money. Identifying whether a new customer is going to be good or bad is actually very difficult, because the lender has no experience of the borrowers behaviour patterns. Given that they cannot assess the applicant's performance directly, they have to do so by proxy and the best information that they have is whether the applicant has a good or bad payment history with other lenders.

For example, a lender may make the following distinction between a good and bad payment history.

  • Good: never in arrears or, at most, one payment in arrears over the period in question
  • Bad: two or more payments in arrears over the period in question.
(A period would usually be between 6 months and 2 years, typically 12 months.)

What Information is used in Credit Scoring?

As stated above, the vast majority of lenders decide for themselves how they will derive a credit score for an individual product. Some may use a score supplied by a CRA but this is very rare in the UK. The information that the lender uses for scoring comes from 3 places:

The application form

Information obtained from the application form will normally cover stability indicators and profile information. The longer you have been with your employer, bank and at your current address, then the more likely you will be perceived well by the lender. Typical examples of the information requested are:

  • Time at Address
  • Time at Bank
  • Time with Employer
  • Age
  • Occupation type
  • Residential status
  • Marital Status
  • Dependents
Information held by the CRA

CRA's obtain their data from the following Sources

  • Credit Account Information Sharing (CAIS). This is the information that the banks and lenders share with each other.
  • Public Information. This would include information on County Court Judgements (CCJs), Bankruptcies (sequestrations in Scotland) and IVAs.
  • Credit Account Previous Searches (CAPS).
  • Geo-demographic information. This is postcode-based information, but is not specifically about where the applicant lives. It is more an indication of the type of area. For example, they may use area profiling using techniques such as ACORN where each postcode area is allocated one of seventeen categories to described the type of area, spending patterns etc
  • Electoral Roll Information
  • Your Financial Associates (i.e. the credit reports of those you are linked to through joint accounts or joint mortgages)
  • CIFAS information.

CIFAS is a non-profit association dedicated to the prevention of financial crime. It provides a range of fraud prevention services, including a fraud avoidance system used by the majority of the UK's financial services companies. This system allows member organisations to exchange details of applications for products or services, which are considered to be fraudulent, because the information provided by the applicant fails verification checks.

Information held by the lender
  • Existing customer holdings
  • Performance on said holdings
  • Transactions and events on said holding
  • Length, depth and type of customer relationship


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