Credit Scores - What do they really mean?

dave88uk

I've been keeping an eye on my "credit score" for the last few weeks due to a large mortgage commitment I want to apply for. My file wasn't as squeaky clean as I would expect so I've done a lot of work and now it's fine.

However, one thing I've seen crop up a couple of times is the 'fact' that "credit scores" are meaningless.

I can very much understand and be not too suprised that Credit Expert/Experian generate a rough figure based on whats on your file/assumptions about your life style in order to coax you into subscribing.

But, being Devil's Advocate, companies have to 'score' you somehow?!

If my credit card application went off for a few days for a decision to be made I could understand that an individual looked at the content of a credit file, such as whether I'd missed payments, had defaults/CCJ's e.t.c

However, anyone whose made a credit card application this millenia knows that decisions take 5-20 seconds. So, there must be an algorithm that decides whether or not you fit their worthiness criteria. One would assume is that they look for a figure (e.g. we'll accept their application if their "credit score" is higher than 850). I used Credit Expert's scoring system there as an example.

So, that's the Devils Advocate's perspective. What is the other perspective? That the algorithm that credit companies use searches files electonically for terms such as "default" "CCJ" electronically?

It'd be interesting to know. I've been a Credit Expect customer and I also bought a statutory online file for £2. Overall, the layout and the information from CE was much greater but I would be guilty of looking for that score increase.

I'm sure some experts on this forum would be able to provide more of an insight.

Tixy

Potential lenders assess the data on your credit file yes.
Computers don't read the data in the same way that a person would, they don't search for terms such a CCJ or default, but will automatically read the data set (binary coding I suppose) that shows that a person has CCJs, or defaults, or have been bankrupt, and the level of debt and level of existing credit etc.
Incidentally this is why if a person adds a notice of correction to their file the credit application will be referred for a person to actually read what it says, so they won't get an instant 20 second decision.

However the lenders (or their computer programmes) will also be assessing the data you have put on the application and that is the key difference to the scores of the credit reference agency. The lenders consider the level of debt/credit not just as absolute numbers but compared to how much you earn which a credit reference agency cannot know.

Personally I don't believe the scores are 'meaningless', but I would say the are at best a rough indication as to how an average potential lender may view the data from your credit reference agency only.

ceredigion

In my opinion the whole system is flawed. The fundamental problem is the credit agency`s have no knowledge of your wealth .
My score has gone from excellent to poor in 6 weeks. Why ?
Because I opened 5 bank accounts in that time , which in turn was because I was looking for a home for 120k . So apparently , im a worse risk now than I was then. Which is just insane.

Stigy

I have two CCJs that are around 2-years old and a couple of defaults (all now satisfied). I've been working hard to improve my credit score and have a lot of 'green' stuff there too now, such as a new(ish) credit card that's been kept in order, an o2 phone contract and a current account, all well kept. My score on Experian is 999 which is the highest it can go.

I just don't understand this given the defaults etc. Experian have always seemed overly generous with their scoring, as CallCredit and Equifax have far lower scores for me. I have been with Experian now for a few years and my score has gone from very poor to excellent in that time (quite quickly, too!), with a bit of fluctuation in between when new accounts were opened etc.

I'm of the view that lenders don't pay much attention to the score, but more the content of the whole report.

GingerFurball_2

A lender will have their own internal scoring system that will largely be based on what they know about you from their previous dealings with you.

Thrugelmir

dave88uk wrote: »

So, that's the Devils Advocate's perspective. What is the other perspective? That the algorithm that credit companies use searches files electonically for terms such as "default" "CCJ" electronically?

Lenders access datasets which provide an array of detail on your financial behaviour in the previous 6 years.

The Trust Registry is the basis of checks for CCJ's etc.

National Hunters is used to prevent application fraud.