Your Credit Score Explained

 One common misconception about lending that we often assume is that individual lenders directly determine your credit score by looking up your financial history and personal background. When it comes to taking out a personal loan, this can be further from the truth. Specifically, your financial data is supplied by the three major credit reference agencies in the UK.  From mortgages, boat loans, car loans, personal loans, and anything in between, the mystery behind how a credit score is calculated is listed below.

What information do they have?

Typically, credit agencies hold specific personal information from all previous credit applications. Even if you are approved or denied, information such as name, date of birth, recent addresses and credit payment history often shows up on their report. Additionally, instances of house repossessions, court orders, arrears, and administration orders also appear. In addition to basic personal information, any instances of bankruptcy or foreclosure are highlighted on a credit report.

The bulk of credit agency personal data tends to revolve around your credit history when assessing a credit score. Factors such as missed or made payments, timeliness of payments, and credit card history are typically noted. Seeing a credit report acts as a timeline, every instance of credit card use is noted including when a card is opened or close. It should also be noted that even if a card is settled or closed, personal data about the card remains on your credit report for up to six years. Lastly, credit agencies record every instance of a credit search on your behalf such as a loan application or when you purchase something with interest free credit.

What are lenders looking for?

Besides asking for details of your employment status, asset portfolio and income, lenders base the bulk of their decision on past information from credit agencies. Specifically, lenders assess how much risk they will potentially be taking by lending to you. 

If you have never applied for credit or lack a history of continued credit use, this may lead lenders to believe that your credit score is too low to warrant lending. With being said, the opposite of this situation such as maintaining too many credit cards can often cause the same results. It should also be noted that there is no official “blacklist” for borrowers – each lender analyzes credit data differently so a situation where you are turned down might be result in approval for another lender if applying for a credit card or loan.

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