Credit Scoring and Credit Referencing in the UK

Credit Scoring

What is Credit Scoring?

Credit scoring is used by most major financial organisations to help them decide whether they can give the applicant credit. They would check every applicant for a mortgage, current account, personal loan or credit card.

It is based on a system which predicts the future conduct of an account based on the past performance of similar accounts.

It works by taking all the relevant details of the application and giving each piece of information a value or score. When all the individual scores have been added together, the total score gives the level of risk associated with the application. The financial organisation will use the total score to help them decide whether to accept the application.

Why do financial organisations use credit scoring?

They do this to make sure that each application for credit is assessed in the same ways and allows credit to be given impartially and fairly. The financial company should check systems and procedures regularly to make sure that they are accurate and reasonable. Responsible lenders is essential for the good of both borrower and lender. The Government department that is concerned with protecting consumers is The Office of Fair Trading and the department considers that credit scoring is an aid to responsible lending.

What sort of information is scored?

Age, employment, history, loans are taken into account.

What is a credit reference agency?

Is an organisation that stores and puts together financial and publicly available information about almost every adult in the UK. The agency does not decide whether credit should be given - it simply provides the factual information that helps the financial organisation decide whether to accept an application or not.

What information is provided by a credit reference agency?

This falls into two categories. Public information and credit account information. The public information consists of the Electoral Register from Local authorities which is used to help identification, county court judgments from the Registry Trust Ltd which is the official body that records county court judgments "CCJs" and bankruptcies from the Official London and Scottish Gazettes.

The credit account information is held by credit reference agencies on behalf of the lenders. Most of the UK' major credit granting institutions store information about the credit agreements they have with their customers with a credit reference agency Many of these lenders have agreed to share this information with each other. This lets them check, when someone applies for credit, whether or not that person has repaid money to other lenders in the past - they can check a person's credit history.

Favourable information such as evidence of a loan that has been regularly been paid on time should support an application. Information showing loans that have not been paid on time may adversely affect an application. If someone has had past financial difficulties they are often more likely to have problems in the future.

Can one person be affected by the credit records of other members of the same household?

Some lenders may take into account information about people with whom the applicant is financially associated with. For example a joint account holder.

What about other people who have lived at the same address in the past?

Information about anyone who used to live at that address is not provided by a credit reference agency unless the applicant was associated to them.

Can an applicant see what information a credit reference agency hold on them?

If the applicant want to see the details, he/she can write to them asking for a copy of their file. He/she will need to give them details of all the addresses that the applicant has lived at and any changes of name over the last six years, together with date of birth, a cheque / postal order for £2.00.

Listed below are details of 3 agencies:

Callcredit Plc - Consumer Services Team, PO Box 491, Leeds LS3 TWZ

Equifax Plc - PO Box 1140, Bradford, BD1 5US

Experian Ltd - Consumer Help Services, PO Box 800, Nottingham NG80 7WF

What if the information is not correct?

If the details are not right, the agency's consumer help service will help have them amended.

Credit Search Referencing

What is Credit Search referencing?

Many UK Letting agents and Private Landlords use credit search referencing on prospective tenants. Companies like Homelet and Letsure offer this service

Depending on the level of product used they might just provide a simple credit score as outlined in the section above or more detailed information contacting employers to find out if enough salary is being earn to cover rental, previous landlord or agent details to find out if rent has been paid previously.

Credit Search Companies normally work on 30 X rent. e.g. rental of £650 pcm X 30 = £19,500 (applicant must earn this amount per annum – if not a guarantor might have to be used) * The credit search company reserves the right to charge for a Guarantor’s reference in addition and this will be charged out at the normal applicant rate.

Some companies work on a different formula 30 X rent X 12 e.g. £650 X 30 X 12 + £23,400 (again applicant must earn this amount per annum).

Several of the credit search companies when they take up references and the applicant has not been the electoral roll, or moved several times will ask for "Proof of Residency" copy of an utility bill (mobile phone bill etc) from the applicants last known address.

With many EU residents or non EU residents they will also ask for a copy of an utility bill (mobile phone bill etc) from the applicants last known address as “proof of residency”.

For Further Information please see rest of this page

N.B. This information should not be relied on for accuracy and is presented here without the responsibility of jml Property Service and the website it is being displayed at. ©jml property Services 03-06

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