Banks are committed to helping you make financial decisions that best suit your circumstances. As responsible lenders, banks take into account your personal circumstances to try to establish the appropriate level of credit to grant to you. To help them do this, applications may be assessed using a process called credit scoring.

What is credit scoring?

Credit scoring is a technique used to assess the probability that a customer will meet their financial commitments.

Credit scoring takes into account information banks may hold about you, and any information they may obtain from other organisations, such as credit reference or fraud prevention agencies. In this objective process, information regarding race, gender disability, colour and religion is not used.

There are very strict rules regarding information obtained from credit reference agencies to ensure your privacy is respected. Other than in exceptional circumstances, information will never be disclosed without your permission.

The credit scoring system allocates points for each piece of relevant information and adds these up to produce a score. When your score reaches a certain level then banks may agree to your application. If your score does not reach this level, they may not.

Every credit application involves a certain level of repayment risk for the lender, no matter how reliable or responsible an applicant is. If the level of acceptable risk is exceeded, the lender may refuse the application or offer the applicant a more appropriate alternative.

Lenders are not obliged to accept an application. Refusal does not mean that any declined applicant is a bad payer. It simply means that based on the information available, the lender is not prepared to take the risk of granting that facility.

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. You can ask your bank about whether credit-scoring techniques will be used when you are applying for credit.

What happens if your application is declined?

If a bank does not wish to accept your application, they will tell you. They will also explain the main reason why they were unable to agree your application on request

If a bank has declined your application you may contact them and ask them to reconsider their decision. They may ask you to provide additional information.

If you are concerned about the way in which your application for credit has been dealt with, you can ask the bank for more information about how the credit scoring system works. If you wish to appeal against a refusal of credit based on a credit scoring system, ask your bank for details.

What is a credit reference agency?

A credit reference agency holds details of financial and publicly available information. An agency obtains information from a variety of sources, such as banks, finance houses, leasing companies and retail stores.

Credit reference agencies are not government organisations but they are strictly regulated under the Consumer Credit Act (1974) and the Data Protection Act (1998) to hold information about individuals, which is of relevance to your bank. They do not give an opinion of the financial status of a customer. A customer’s past payment record may indicate they are a credit risk to a bank even if it was due to circumstances beyond their control.

What should you do if you encounter difficulties in keeping up payments to a borrowing facility?

You should approach your lender at the earliest opportunity to discuss any financial difficulties you might be experiencing and your ability to make future repayments. Borrowers can also seek help from money advice bodies such as Citizens Advice and the Money Advice Service. Your bank will be in a better position to help if difficulties are identified at an early stage. Any delay in seeking help could cause your situation to deteriorate further, which may affect your future ability to obtain credit.

For further information on credit scoring, please also refer to the credit scoring guide published by the Office of Fair Trading.