A system used by lenders to calculate the statistical probability that a loan they grant to you will be repaid. Different lenders have different rules for assessing risk. Each lender works out the characteristics of 'good' and 'bad' customers, based on past experience. Since homeowners or borrowers with steady incomes may be considered less likely to default, their credit scoring will reflect this. The entries on an application form are given a rating resulting in a total 'score' which will determine whether the application in accepted or rejected based on a threshold value Since credit scoring is the key to different lenders' risk management they do not easily reveal the precise details of how it works. Furthermore, since lenders are free to use different scoring criteria, and set different thresholds, even if you are rejected by one lender your application could well be approved by another.
All scores are individual and calculated using a mathematical formula that evaluates all types of information on an individual's credit report, compared to information patterns in millions of past credit files. The score can then identify the level of future credit risk. If you have been refused credit, you are still entitled to know whether a credit reference agency was consulted (and be provided with their contact details), in addition to whether your credit report adversely affected your application. If you are refused credit, under the Data Protection Act 1998, you have the right to ask that your application be assessed manually. Whilst you have no legal right to credit or to a detailed explanation of why any application you make is turned down, credit industry codes of practice do encourage lenders to at least inform you of the principal reason behind their decision.
