Credit Scoring

Whenever you apply for a credit card the prospective lender will run a credit check on you through one of the two main credit reference agencies in the UK: Experian and Equifax.

Between them the two agencies hold details on some 44 million people in the UK. Your file includes information about your other credit cards, your mortgage, your bank accounts as well as facts and figures on any unpaid bills, failure to pay hire purchase debts, bankruptcy and County Court Judgements.

It depends entirely on the credit provider as to the amount of risk they are prepared to take, so varying degrees of importance are attached to the information gathered from the credit reference agency and from your application form. It works on a points system, and the more points you get, the more likely it is that the provider will lend you money. 

A lender's individual credit scoring system is commercially sensitive information so it's sometimes difficult to find out exactly why you might have been turned down for a credit card. 

Factors taken into consideration with credit scoring often include the number of years you have been in your present employment, your marital status, your age and the age of most recent bad debt. 

Other criteria include how long you've lived at a particular address (the longer the better) and whether or not you're on the electoral roll. Your postcode is also relevant because it indicates whether you live in an affluent area or not, and your profession counts too.

Lenders operate their own credit scoring rules, which take into account whether an individual is a good risk for a credit card. This leads to anomalies: the same person could be accepted by one lender, but turned down by another, based on identical information. 

It is the lender, not - as many wrongly assume - a credit reference agency that sets credit score criteria. There is no obligation on a lender to reveal the criteria it uses, and most keep the exact details secret in order to deter fraud.

The points that matter on a credit score, and the weight given to individual criteria will differ from lender to lender and even from product to product. This does make sense: a lender's gold or platinum credit card, for example, will have tougher rules than the standard card.

All standard credit scores start with the negatives: defaults, CCJs and bankruptcy. Once the lender has checked these and looked for poor payment patterns, it will then go on to make more subjective judgements based on the applicant's credit reference agency file and, of course, on the application form.

Homeowners will score more highly than people in rented accommodation, and permanent employment is rated better than self employment and unemployment. Married people, in particular married men, usually have a higher credit score than their unmarried counterparts. Some criteria might seem a little stranger: having the phone line in your name helps, as does being on the electoral roll.

Above all, though, a track record in managing credit successfully is most likely to count in your favour. Lenders want to know that the person they lend to can handle the debt, and the best way to demonstrate this is to have borrowed before, without running into trouble. A couple of credit card accounts in good order, or a personal loan, will be plus points. Too much debt, though, will reduce a credit score.

Checking Your Credit File

The two main credit reference agencies in the UK are Experian and Equifax. If you apply for a loan or other financial product, the lender will almost always carry out a credit check with one of the agencies. It is not just lenders that do so: companies from utility suppliers to mobile phone operators will usually carry out credit checks. They must ask for your consent before they do so.

Lenders are not obliged to say why they turn down applications for loans or credit cards, but they will normally state if the rejection was because of a low credit score. If the reason for rejection was information from a credit reference agency, rather than the lender's own credit score, the lender will tell you. They will also tell you which agency they used.

The agencies are obliged to give consumers copies of the information they hold.  

You can view or order your credit report online. Click here for full details.

Compare deals