Your Credit File: How lenders decide to loan

By MI&D
January 17, 2021

While the Government encourages lenders to offer more credit, we don’t have a right to be lent money. At the end of the day, it’s still a commercial decision about whether they want to lend, as it’s as much about what makes a profitable customer as it is about risk.

It’s even been reported that credit card companies have rejected people for always repaying other cards in full and it’s often cheaper for a lender to reject some applications from people who it should be lending to, than to accept some it shouldn’t be lending to.

When you apply for credit or a loan, your online or form application gives the lender permission to scrutinize your credit reference file from the Credit Reference Agencies who supply a cache of information about consumers’ borrowing and financial behaviour.

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Banks and companies use this information to make decisions about whether to lend to you. In the event the lender refuses your application for credit they must tell you why credit has been denied, and tell you what credit reference agency they used. Because creditors have different systems to work out credit scores, even if you’re denied by one lender, you might not be denied by others.

Credit scoring systems, used by lenders to make their decision, tells them a lot of information about your financial history and behaviour. Each bit of information about you is given points. All the points are totalled to give a score. The higher your score, the more credit worthy you are. Creditors set a threshold level for credit scoring. If your score is below the threshold, they may decide not to lend to you, or, if they do agree to lend they may charge you more or give you less favourable terms.

ALSO READ Your Credit File: How credit scores help you

You can check whether the information they used is right. Different lenders use different systems for working out your score. They won’t tell you what your score is, but if you ask them, as mentioned, they must tell you which credit reference agency they used. You may be able to improve your credit score by correcting anything that is wrong on your credit reference file.

ALSO READ Credit Scoring: How to improve your credit score