Quick guide to credit scoring
As a responsible lender, we take into account your personal circumstances when applying for a personal loan or retail finance loan with us. To help us do this, applications are assessed using a process called credit scoring.
Credit scoring is a way of assessing applications for the purpose of obtaining credit. A credit score is a way of looking at lots of pieces of information, for example your payment history, your outstanding credit arrangements and how many other times you have applied for credit arrangements, then summarising this as a single figure, or credit score, to help companies such as Lending Works assess and compare individual applications.
How does credit scoring work?
Credit scoring takes into account information provided directly by you, any information we may hold about you, and any information we may obtain from other organisations. One of the organisations we obtain information from may include a licensed Credit Reference Agency (see Credit Reference Agencies below). Lending Works uses Equifax as our Credit Referencing Agency, they can be contacted at www.equifax.com or by telephone on 0870 335 0550.
The credit scoring system allocates points for each piece of relevant information and combines these to produce a score. Each lender has different criteria for scores that they will accept or decline for the credit that has been requested. If your score does not reach our minimum level, we may not accept you for the loan or retail finance you have applied for.
Sometimes scores are calculated by a Credit Reference Agency and we may use these in our assessment. The points allocated are based on thorough analysis of a vast range of data, including repayment histories over many years of providing credit. This statistical analysis enables us to identify characteristics that predict future performance. For example, individuals who have county court judgements registered in their name have proved to be less likely to meet payments than those without judgements.
Credit scoring produces consistent decisions and is designed to ensure all applicants are treated fairly. Additionally, we have policy rules to determine whether we will lend to each individual. These reflect our commercial experience and requirements. For example, if we have direct evidence that you have shown poor management of credit products in the past we may decline your application. Every application to open an account or borrow money involves a certain level of repayment risk for the lender, no matter how reliable or responsible an applicant is. Credit scoring enables us to calculate the level of risk for each applicant based on the information we have obtained. If the level of acceptable risk to us is exceeded, we will not accept the application.
This does not necessarily mean that any declined applicant is a bad payer. It simply means that based on the information available to us, we are not prepared to take the risk of opening that account or granting that loan. Lenders are not obliged to accept an application. Lenders have different lending policies and scoring systems, and so applications to them may be assessed differently. This means that one lender may accept your application but another may not. If your application is declined, this will not be disclosed to the Credit Reference Agency.
Is credit scoring fair?
We believe that credit scoring is fair and impartial. It does not single out a specific piece of information as the reason for declining an application. We test our credit scoring methods regularly to make sure they continue to be fair and unbiased. Responsible lending is essential both for the good of applicants and lenders. The Financial Conduct Authority now regulates consumer credit and considers credit scoring to be an aid to responsible lending.
Applicants with county court judgements may find credit difficult to obtain.
What happens if your application is declined?
If we are unable to accept your application, we will tell you. We will also tell you the principal reason why we were unable to agree to your request, for example, if you do not pass our credit score we will tell you. If we have declined your application you may contact us and ask us to reconsider our decision. We will usually ask you to provide additional information, which was not available at the time your original application was submitted. If you wish to ask us to reconsider our decision then please email email@example.com or write to the following:
Loan Appeals, Credit Underwriting Manager, 60 Gray's Inn Road, London WC1X 8AQ
Your appeal will be assessed by a different member of staff to the staff member who initially processed your application.
Credit Reference Agencies
Lending Works uses Credit Reference Agencies to help make its lending decisions and identify customers. They do this by compiling and providing public and credit account information. Public information includes Electoral Register information supplied to local authorities by householders each autumn. Lending Works uses this information to help confirm names and addresses. Public information also includes information on County Court Judgements, Scottish Decrees, Bankruptcies, Individual Voluntary Arrangements and Administration Orders. Credit account information includes data supplied by registered lenders on how customers manage their credit agreements. This allows the bank to check when someone applies for credit that the person applying has repaid or is repaying other lenders.
When the bank (or any lender) processes an application that may involve credit, it searches the database of one or more of the Credit Reference Agencies for information about the applicant at current and previous addresses. The agencies keep a record of all searches and this allows Lending Works to see when and how many times other lenders have accessed the applicant’s credit information.