How does mortgage credit scoring work?
Every loan, mortgage, or credit application a lender makes involves some risk that the money will not be paid back on time or worse still, not paid at all - no matter how responsible or reliable an applicant might appear.Credit scoring is a "fair system" used by lenders to determine the level of risk for each application and enables lenders to produce consistent and reliable methods to treat customers fairly and provide the lender with a way to say Yes or No.
What information is held on my credit file
Your credit file contains mainly statistical data showing your repayment history over many years of credit agreement repayments, typically up to 6 years will be held on file, even after a debt may have been repaid in full.Your credit file also records adverse information such as late payments, defaults, and County Court Judgements for late / non-payment. Any formal credit applications are also recorded on file and it is generally accepted that having too many "searches" can start to affect your credit rating.
How does a lender use this credit information?
Firstly, a lender must have your permission to run a credit score and this can be given verbally or writing. When using a broker you will give them agreement to act in obtaining credit - this will involve credit searches. Be careful of some internet sites and read the small print as some sites will automatically search your credit file.The lender uses your payment profile to make a decision as to how you have conducted yourself financially and whether you are over-stretched financially. Points are normally awarded, the better the profile, the more points awarded.This information is used in conjunction with other information such as the size of the deposit, your age, employment history, earnings, and address history to form an overall "credit score." Once you reach a certain "score," the lender usually agrees to lend you the money.
Do all lenders use the same system?
No, typically lenders rely on two agencies to obtain the statistical information.
A lender will then apply this information to its own systems and previous experiences or lending policy. So for example, lender A may decline the loan and lender B may approve your loan. Mortgage brokers use their experience to understand your financial situation and obtain the best terms for you taking into account the above credit scoring. Put simply, if you are refused by one lender, this doesn't mean the next will say no, however the terms (typically interest charges) are likely to vary to reflect the "risk" associated when lending money. You can apply online with both agencies to obtain your reports for s small fee and we are happy to review your report if you provide a copy by email.
| Experian | Equifax |
| Consumer Help Service | Dept 1E |
| P O Box 8000 | P O Box 3001 |
| Nottingham | Glasgow |
| NG1 5GX | G8 2DT |
| Weblink | Weblink |
