Credit Scoring and Data sharing
Credit scoring is the system most major banks and finance companies use when considering applications for borrowing. It takes account of information you provide in your application, any information the lender may already have about you, and any information they may get from other organisations, such as credit reference or fraud-prevention agencies. When lenders use information from other organisations, they will tell you who they are.
The credit-scoring system awards points for each piece of relevant information and adds these up to produce a score. If your score reaches a certain level, a lender will generally accept your application. If your score does not reach this level, they may not accept your application.
A lender may sometimes use scores worked out by credit reference agencies.
Each lender uses their own scoring system to evaluate risk, but they tend to use factors such as the length of time you have been in a job, home ownership, length of time at your current address, your age group and so on.
Credit scoring produces consistent decisions and is designed to make sure that all applicants are treated fairly.
The process is closely regulated by the Financial Services Authority.
Finance companies share information on credit agreements with other lenders, using credit reference agencies (CRAs), to be able to make responsible lending decisions and avoid fraud.
The FLA is keen to see an increase in controlled data sharing because we believe it can help to prevent over indebtedness and fraud.
For example, we have long campaigned for access to student loan data to help students build up a credit history. A more complete picture would also be available if utility companies were to share their data.
Although it makes good sense to share information, it is not possible in many instances. In the past, some lenders had not foreseen the widespread sharing of data or had not planned to share data via the CRAs, so had not informed customers in their ‘fair processing’ notices of an intention to do so. The Data Protection Act 1998 now prevents them from sharing data relating to such customers.
Because some types of account, such as credit cards, can remain open for decades, even lenders who have shared data for years may have significant numbers of accounts blocked from data sharing. So only newer credit data is shared.