Have you ever wondered what exactly lenders use to determine if they will lend you money or not? It might seem like there is a predetermined set of rules. And in some ways, this is correct. There are a set of guidelines lenders follow when deciding whether or not to lend you money. But this varies from institution to institution and what might be acceptable to one lender isn’t for another company.
By and large, how you manage the credit available to you and your general finances make up a massive art of whether or not you are creditworthy. Your behaviours, patterns and so on make up your financial profile. But there are many different factors involved for a lender when choosing to accept you for a line of credit.
How Is Your Credit Score Determined?
Credit scoring is a method used by lenders to assess the risk of lending to you. A credit application form informs the lender a lot about you. Each fact about you is scored. The total of all points is the score. The higher your score, the better your credit. Creditors set a credit scoring threshold. If your credit score is low, they may refuse to lend to you or charge you more if they do.
Lenders use varying methodologies to calculate your score. If you ask, they must tell you which credit reference agency obtained your information. You can then verify their data.
Because creditors use different methods to calculate credit scores, you may be rejected by one but not by another. You can find out more information about how lenders assess your applications by looking into the credit risk strategy employed by many lenders when making their decisions.
What Information Do Credit Agencies Use?
Credit reference agencies monitor consumers’ borrowing and financial behaviour. When you apply for credit or a loan, you authorise the lender to check your credit report. Lenders use this data to decide whether or not to lend to you. After examining your credit file, a lender must explain why and provide the credit reference agency’s details if a lender refuses your credit.
Experian, Equifax, and TransUnion are the three credit bureaus in the UK. A lender may consult one or more of the credit reference companies while making a judgement.
When looking deciding to lend you credit, the following factors are taken into consideration;
- Electoral Roll – If you are on the Electoral Roll, this will have information in the addresses you have registered to vote from.
- Public Records – What public records are held on you will include country court judgements (CCJs), bankruptcies, and IVAs. Debt Relief Orders and Administration Orders.
- Existing Accounts – How you manage the current credit accounts you currently have.
- Mortgage Status – Whether or not you are in arrears or you have ever had your home repossessed.
- Financial Associations – The credit score of people you are financially linked to.
- Searches – Including previous searches made by other companies recorded on your credit file.
If there are any errors, you can request these to be corrected and removed from your credit score and any settled accounts that are overdue.