Guide to Credit Scoring1

This revised Guide to consumer credit scoring has been drawn up by the following organisations in the credit industry:

Association for Payment Clearing Services
British Bankers' Association
Building Societies Association
Consumer Credit Trade Association
Council of Mortgage Lenders
Credit Card Research Group
Finance & Leasing Association
Institute of Credit Management
Mail Order Traders Association

Together with:

Consumer Credit Association (UK)
Equifax
Experian
Scorex (UK) Ltd

INTRODUCTION

This Guide is for developers and users of scoring systems that are used in making decisions about consumer credit. It updates the second edition, drawn up in 1993.

The Office of Fair Trading supports the principles of scoring and recognises its important contribution to responsible credit granting.

Credit scoring measures the statistical probability that credit will be satisfactorily repaid. It is based on the fact that it is possible, using statistical techniques, to predict the future performance of applicants with similar characteristics to previous applications (either of the credit grantor itself or groups of credit grantors).

Scoring calculates the level of risk and reduces the element of subjectivity in lending decisions. It enables credit grantors to manage their business more effectively. This benefits the majority of customers who wish to borrow only what they can afford to repay.

Credit scoring is one of the most consistent, accurate and fair forms of credit assessment available. However, for practical and economic reasons, it is not possible for all credit grantors to adopt credit scoring systems. Equally, credit scoring is not the only technique. This Guide applies both where credit scoring is the sole method of credit assessment and where it is combined with other methods.

Since the Guide was last updated, techniques have been continually developed and improved and new legislation, such as the Data Protection Act 1998, has been enacted. The relevant principles in the Act have been taken into account in this Guide. In particular, automated decision making, and its relationship with scoring, is included.

Please download the full Guide from the pdf link below.

Please download Addendum to Guide to Credit Scoring 2000, added in June 2007 from the pdf link below.