Why does a lender search reduce a credit score

Cheers

Why does applying for credit or a loan thus reduce a persons credit worthiness?!

Hazzinho

It does on credit applications in the short term as lenders can't see if you've been accepted. They don't want to give a loan on top of a loan they can't yet see. Also loads in a short space of time seems desperate.

MEM62

It doesn't - because credit scores do not exist. They are randomly made up numbers designed to fool you into thinking that you need to subscribe to a credit score monitoring service.


A lender will look at the information on your report - not the score. An as has already been suggested, a lot of applications will in a short space of time may suggest problems.

Cheers

Just one search..

I read on moneyadviceservice that lenders do check a score and raise interest rates on ur loan if it gets bad

https://www.moneyadviceservice.org.uk/en/articles/how-your-credit-score-affects-the-cost-of-borrowing

YorkshireBoy

Cheers wrote: »

I read on moneyadviceservice that lenders do check a score and raise interest rates on ur loan if it gets bad

https://www.moneyadviceservice.org.uk/en/articles/how-your-credit-score-affects-the-cost-of-borrowing

You may have read it incorrectly?

They produce their own credit scores, based on the data they get from, amongst others, the 3 UK CRAs.

Some UK financial institutions (around 150) do, or at least did, take a 'scorecard' from the likes of Experian, but this isn't the same one the CRAs sell consumers.

I've no insider knowledge, but I'd guess that no major bank or credit card provider would need to take such a scorecard from the CRAs, so they're probably only taken by the smaller players?

CptJackSparrow

Hi - I do have concerns on how the "number of credit search" is misinterpreted without appreciating the reason for the number quoted.

For e.g. I recently switched my current bank account from one bank to another. Because of the switch the new bank did a credit search on me, which is fair. However I'm not sure why this is interpreted as "negative" and lowers my credit score!

I do get the argument that credit score will be impacted negatively, if I'm opening additional accounts, as it may come across as desperation. But switching a bank account isn't opening an additional account but a mere transfer and hence I'm a little disappointed with a negative mark on my file.

The irony is that I moved to this new bank and then applied for a credit card with them, which got rejected, because of credit fail! When I contacted Experian for the reason / report, I see the "Number of credit search" flagged as a negative score!

Below are the high level questions / criteria used by Experian to evaluate a credit score and generate the associated Credit file report for an applicant. It will be good to understand how does each of these get calculated and if there is any basic flaw in the interpretation applied based on the score (like the one stated above).

Thanks,
Cpt.

How you're doing: Experian's analysis of your credit situation

1. How many credit accounts do you have? - Having a large number of active credit accounts may decrease your credit score. However, if you have a large number of settled credit accounts, this can have a positive effect on your score.

2. What is your outstanding total credit balance? - Your credit balance is the total amount you owe across all your credit accounts (excluding mortgages).

3. How much of your available credit are you using? - Your total available credit is the combined limit of all your revolving credit accounts.

4. Are you keeping up with your payments? - Late payments on your credit accounts may decrease your credit score.

5. What's the age of your credit accounts? - New credit accounts may decrease your credit score. As your accounts get older your score could increase.

How many credit applications have you made in the last 6 months? - Making numerous credit applications can suggest to lenders you are reliant on credit and are not able to live off your income.

Concern: As stated above...in my header post

Are you on the Electoral Roll? - Being on the Electoral Roll makes it easier for banks and financial institutions to confirm your identity.

Have you got any CCJ, Bankruptcy, or IVA records? - These may decrease your credit score for at least 6 years.

2. These additional factors may affect lenders' decisions - Although these factors may not impact your Experian Credit Score, organisations may take these things into account when making lending decisions.

Do you still have unpaid debts at your previous addresses? - If you have, you may appear on the Gone Away Information Network (GAIN).

S1. Have you been a victim of identity fraud? - If you have, you might be on the CIFAS register

S2. How many addresses are you linked to? - This includes variants of your current address and previous addresses.

S3. How many names have you been known by? - These could include your maiden name or variants of your name (e.g. Miss S Smith, Miss Sarah Smith, Sally Smith).

S4. Are you financially associated with anyone? - Have you previously applied for credit with someone else, or do you share a credit account (e.g. joint credit card)?

solentsusie

Hi CptJackSparrow

Please remember this. Credit scores are made up by the credit reference agencies to get you to buy into their services. These scores mean nothing and each lender you apply to will 'score' you on own merit against their own criteria to decide whether or not to lend to you.

solentsusie

MEM62 wrote: »

A lender will look at the information on your report - not the score. An as has already been suggested, a lot of applications will in a short space of time may suggest problems.

Multiple searches in a short space of time for credit will show a red flag to lenders, but over all the odd search is not going to affect you anywhere near as much as the credit reference agencies try to make you believe.

shortcrust

It's not an exact science. Lenders have no way of knowing what you apply for so they can't tell the difference between someone who's switched a few current accounts to make a bit of money and someone who's opened a few credit cards because they're in a dire financial situation. Anyway, it's only part of the picture. I've been accepted for credit when I've had loads of recent searches and I've been declined when I've not applied for anything for months.

Cheers

Who were you accepted by, shortcrust?

shortcrust

Cheers wrote: »

Who were you accepted by, shortcrust?

I got accepted by Santander and TSB late last year when I probably had seven or eight recent searches on my report. The important thing to recognise is that the number of recent searches is only one of many bits of information lenders consider when making decisions. Yes I had a lot of searches, but I also have a long history of managing credit and paying my bills.