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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.

A recent survey by a leading credit referencing and scoring company has shown major discrepancies between residents of various countries when it comes to their credit scores. Your credit score is expressed as a numerical value, and is a measure of how good a risk you are for a financial services company. Put simply, it gives you a general idea about whether or not you’d be likely to be accepted for a loan or mortgage. The cost-of-living crisis means that more of us than ever are thinking about borrowing to meet rising costs, and understanding your credit score helps you judge whether your application is likely to be successful. Furthermore, many employers ask workers to have a credit check to verify their identity and help them in their recruitment process. If you’re a bit in the dark about what your credit score is, and how to improve it, then here are the basics.

Know Your Numbers

The main finding from the recent survey was that almost 50% of British adults do not know what their credit score is, and what steps they should take to improve it. In contrast, figures are much higher in other European countries, with only 40% of Germans saying that they don’t think about their credit scores. The survey also indicated that this lack of knowledge could be making it harder for people to get credit when they wish to access a new mortgage or loan. Around 10% of people surveyed say that they have been refused credit since the beginning of 2020, and the majority of those lack awareness of how to improve matters.

Consequence of Poor Credit Scores

Many consumers first try to access loans or other forms of credit through banks and building societies. If refused because of a poor credit score or other issues with their credit history, they are more likely to resort to much more expensive options, such as pay day loans or loans secured against a vehicle. These forms of credit come with much higher interest rates, making the applicant’s financial situation even worse, and creating an ever-increasing spiral of debt. Many more applicants were shocked to be turned down when applying for a credit card or other product, as they thought the had a good credit rating.

Checking Your Rating

British attitudes contrast sharply to those in the US, where the average American looks at their credit score about four times a year, and only a fifth of US adults don’t know what their credit scores are. The easiest way of becoming informed about your credit score is by downloading one of the apps such as Credit Karma, or by signing up for one of the websites such as Clear Score or Experian. Most offer a free membership level if you don’t wish to pay for additional services. Get into the habit of logging into the site or opening the app once a month to check how your credit score is looking. Any sudden changes in rating should be investigated, as it could indicate fraud or identity theft.

KYC is one of those abbreviations which is often used in the financial services industry, but what is it all about? KYC stands for Know Your Customer, and describes the steps which banks, building societies and other financial institutions must take to comply with money laundering legislation. In practical terms, KYC describes the checks and proof which a bank might ask you for when you open a new bank account, take out a loan or credit card, or apply for a mortgage.

Reliable Documents

Every bank will have its own rules and processes for implementing KYC, but all will follow a broadly similar process. When you go into a bank to talk about opening an account or applying for a mortgage, you will be asked to take with you some key identity documents to prove who you are, and your residential address. If you are applying for a joint account, both people named on the account must provide their identity documents to be verified. If the account is for an organisation such as a company or charity, other documents must be shown to prove that the organisation is properly registered and who the owners are.

The key requirements for documents used to prove identity is that they should have the owner’s photograph, and signature. The commonly used documents to prove identity are passports and driving licences. It is a common misconception that a British passport is required to prove identity to a British bank, but this is not the case. The legislation allows for the use of any passport officially issued by a foreign government, as long as it is machine readable and currently valid. A photo driving licence issued overseas which has not expired and has both signature and photograph can be used to prove identity too.

Proving Your Address

As well as proving your identity, the KYC regulations require banks to check that the addresses stated are genuine too. If you have used your passport to prove your identity, then you can use a driving licence as proof of address. Alternatively, customers can produce other documents such as a credit card or bank statement, a Council Tax statement, utility bills or mortgage statements. Banks will want to see recent and original copies of your address documents. “Recent” is generally defined as within the last three months, or in the case of something sent annually such as a Council Tax bill or mortgage statement, the most recent available. Banks will generally not accept any documents which have been printed off the internet. As most of us are managing our finances online these days, that could mean requesting a hard copy of a statement.

Credit Checking

Banks might also take steps to check that the documents you have presented are genuine and may want to take copies. They might also run basic credit checks, looking at whether you are registered to vote at the address you have given. If you are not on the electoral roll, this can make getting any sort of credit difficult.

A recent survey from a recruitment company indicated that as many as 83% of employers are missing out on top talent due to delays in background screening. The best candidates become frustrated with delays in waiting for checks to be completed and go elsewhere. At a time where companies in many sectors of the market are finding it difficult to fill all vacancies, any hold-ups in the checking process can put companies at risk.

Right to Work Checks

Levels of background screening will depend usually on the level of responsibility the job entails. Generally, a company will want to do more detailed screening and checking on someone who is being hired into a senior management position than someone much more junior. One of the non-negotiable checks however are the Right to Work checks, where an employer must verify that the people being employed to work in the UK are in the country legally and have the legal right to take up paid employment. There is a range of ways of doing this, and the best method will depend on the company. A small company might just ask new employees to bring their passports with them to an interview. Larger employers typically use a digital portal or third-party partner to allow applicants to verify their identity digitally.

Delays in DBS Checks

Disclosure and Barring Service checks – or their equivalent in Scotland and Northern Ireland – are legally required for many positions, especially in healthcare or education. In many cases, applicants will not be able to start work until their DBS certificate arrives in the post, or in cases where they start work, their duties may be restricted. Delays in processing DBS checks is nothing new, and the length of time for processing varies not only depending on the time of year, but also depending on where you live. Employers who request a large number of DBS checks should be aware of roughly how long it will take to complete, but you can maximise your chances by taking care over completing the form and getting someone else to proofread it before hitting the submit button online.

Other Screening Checks

Most companies will at the very least chase references for people applying to work with them. When a large volume of applicants all need verifying at the same time, this can take quite some time if handled in-house. Many organisations are also conducting more detailed checks, such as verifying academic qualifications with universities or schools, or looking through someone’s social media feed. These checks are not a legal requirement, so if a company is keen to get someone into position quickly, they may choose to skip some of these stages. Credit checking is also required for many roles in financial services, and online credit scoring and referencing sites make this a quick job. It also means that you as a candidate can also log in to the credit checking site and see the same information a prospective employer will be judging on.

Congratulations! You made it through the long interview process, and you have received a job offer in the post. But at the bottom of the letter, after the important stuff about salary and holiday entitlement, is a single sentence about the offer being subject to background screening. This is becoming increasingly common in the UK and background screening refers to the checks and searches which an employer might do before taking on a member of staff. Some employers may conduct the checks themselves, others may ask a specialist company to do it for them. Background checking isn’t necessarily something to be frightened of, and many of the checks you can run yourself to see what might come up on a screening check.

Inconsistencies and Discrepancies

Perhaps the most common check is a close inspection of both your application form and CV. This is often done pre-interview, but screening companies may be able to pick up issues which have been missed. Screening companies, or in-house HR departments will make sure that the information you have given on your application form is the same as that on a CV and might compare that with other public profiles on sites like LinkedIn or Facebook. Finding that someone has given three different dates for when they attended university, alarm bells might be ringing. Make sure that you are presenting a consistent back story about education and employment and can explain any gaps in your education or employment history.

Credit Checking

If you are applying for a job in financial services, then you might be asked to consent to a credit check too. Credit checks look at your basic financial situation and aim to weed out people whose serious financial difficulties mean they could be tempted to commit fraud or be vulnerable to blackmail or pressure. Your own financial information is yours, and you can look at the same information as an employer can, so it is worth doing this to make sure there are no nasty surprises in store. It’s surprising how many credit records contain basic errors, so contact one of the major credit referencing agencies to request your file and make sure there are no accounts you don’t recognise or defaults in your name. There is lots of information online about steps which you can take to improve your credit score.

Social Media Screening

One of the easiest things to do for an employer and the applicant is a social media screening. This involves looking at your Instagram, Facebook, Twitter or LinkedIn accounts to make sure that you aren’t posting or sharing content which calls your character into question. It’s very easy to do this screening yourself, by logging into the site and seeing how your profile appears to someone else. Sharing pictures of your cat or children isn’t going to raise red flags, but following extreme political content or several critical posts of a former employer might. Delete any posts you don’t wish to be seen or tighten your privacy settings so that very little is visible to people you don’t know personally.

How interviews are conducted has ensured businesses and organisations can interview people in any location, regardless of how remote they are. However, there is more to assessing whether a candidate is a good fit for a role, and a pre-employment credit check is essential for making an informed decision.

There may be several checks that need to be carried out in addition to a credit check, depending on the nature of the roles. However, a credit report is essential for a job interview for the following reasons.

Assess the Identity of the Candidate

Although surprising, employment fraud can cost businesses a lot of money. As such, ensuring a person is who they say they are is of the utmost importance. A background check can consist of several processes, but a credit check ensures employers can carry out a thorough background check.

Even though a credit check is carried out online, the complexity of the methods used for document verification means even the most sophisticated of fraudulent documents are detected.

Check Whether a Person is a Good Fit for a Role

Being responsible with money is not always a prerequisite for a job. Still, it can help businesses decide whether a person is a good fit, especially if the role involves management or finance. Of course, poor credit history doesn’t necessarily mean a candidate is nefarious, but it does allow companies to make an informed decision when filling a position.

What Is Needed to Carry Out a Credit Check?

Companies and organisations can only carry out a credit check after permission has been given, so this needs to be sought in the first instance. To carry out a credit check, a full name and address will be required, as well as any addresses used in the past.

In some instances, document verification for a credit check will be needed. This can occur if recent details have changed, or a company has difficulty locating the person’s details.

Fraudulent documents are becoming more sophisticated, but so is the software used to counteract fake paperwork. Using an external agency for document verification gives companies and organisations carrying out credit checks the ability to ensure all documentation forward to support an application is genuine.

How Long Does a Credit Check Take to Complete?

Regardless of why a credit check is carried out, it is typically completed relatively quickly. However, there can be instances when it can take as long as ten days. Document verification ensures that background checks can be done as soon as possible while giving companies confidence that assessments are completed thoroughly.

If you’re currently considering hiring a new person or carrying out a complete recruitment drive, then a credit check can make all the difference regarding a successful hire. Furthermore, document verification helps ensure that credit checks aren’t delayed when waiting to offer a person a position.