Credit scoring is a system used by financial services to assess the creditworthiness of either an individual or a business. In the UK, credit scoring is used by a wide range of lenders, including banks, credit card companies, and mortgage lenders, to help make decisions about who should get credit.
Any credit scoring looks at a range of factors related to an individual’s financial history, or the history of a company. A credit file contains information about someone’s debts or credit facilities, such as credit cards, loans, and mortgages, as well as details of any missed or late payments. Companies might also look at employment status, outstanding debt, and a range of other factors. All these factors are used to give the individual a credit score. This is a number between 0 and 999 which indicates the likelihood of the individual being able to repay the credit they have applied for. The higher the score, the better.
The main credit reference agency each have their own credit scoring system, which means that your score may vary depending on which agency is used by the lender. Although the numbers may differ between the different companies, the factors they look at to arrive at their calculation will be broadly similar.
Affordability
As well as looking at whether someone has defaulted on agreements in the past or is only paying the minimum each month on their credit cards, lenders have now introduced the concept of affordability. This move came in response to the financial crash of around 15 years ago, where lenders got into huge difficulty by lending money to people who had no hope of ever paying it back. Affordability lending involves looking at your financial outgoings such as rent and bills, and working out whether you have space in the household budget to take on another line of credit. Affordability is considered along with your credit score or history when deciding whether to give you a new credit card or mortgage.
Checking Your Credit Score
In the UK, individuals have the right to check their credit report. There are several ways of doing this, and you will probably have seen the adverts promoting apps or websites where you can log in and track your score. It’s not unheard of for people to spot mistakes on their credit file, and having those corrected can improve your score almost immediately.
Credit Checking for Employment
Credit Scoring and checking is standard practice for many jobs, especially in the financial services market. Positions which involve access to large sums of money are likely to have more extensive checking of credit, identity and criminal records than entry-level positions. Companies such as Verify Online work with employers to check out the backgrounds of people who have applied for employment. This process is entirely transparent, and it is good practice for employers to be very clear about what they are checking, and why. Companies which are not operating in the financial services market are unlikely to be interested in your credit score or record at all.