What is Credit Scoring?

Many of you will have come across this term when applying for things such as a mortgage, loan credit score or maybe a new mobile phone contract - But what does it mean?.

It is a method used by many, but not all, credit providers, such as mortgage lenders, so they can make a judgement as to whether they feel you are likely to be able to afford the credit you are applying for and if it is felt you are a "safe bet" when it comes to keeping to your side of the agreement. Anumber of factors will be given differing values to give a final score. This may be within a range of say 0 -1000, with 1000 being a high score. There will be a "cut off" score. If this is not attained it could well be the lender will not offer the credit you require.

It is common for a lender to obtain information from a credit reference agency, such as Experian or Equifax, so they can see the level of debt you currently have and see if you been repaying these debts as agreed. This search will also show historic information into debts you may have repaid in recent years. It will also show if you are registered on the voters roll. If you are this could well help with your score.

As well as this data lenders will look at your current circumstances, such as your level of income and how long you have been employed/self employed and the type pf work you do, the number of dependants you have and how long you have been at your current adress.

This is not an exhaustive list and the inforamtion requested will vary from lender to lender. It is important that any inforamtion requested is given fully and accurately as missing/inaccurate information may lower your score. Even making sure you input all your contact numbers and email address may help.

Ultimately, different lenders use differing methods and it is possible that you could be declined for the credit you are asking for by one lender whilst you get an A+ pass with another.

Finally, the number of searches carried out through one of the credit reference agencies can affect your score so it can be important to make sure you are confident that your circumstances at least fit the lenders basic criteria in the first place or there is the risk of building up a number of searches trying to get the credit you require. Ultimately, a lender that may have offered you what you require had you approached them first, may not offer this if you have had a number of searches elsewhere before you approach them as the previous searches have lowered your credit score.

In relation to mortgages, it is useful to have a good knowledge of lenders' criteria and the likely things they look for when credit scoring. Using an Independent Mortgage Adviser could be invaluable!