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Credit Scoring - What A Joke

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Something which I really don't understand about credit scoring is the way in which people who have never borrowed money are rated lower than those who have. While I understand that the companies are judging people's ability to manage debt they seem to be missing a point IMHO. Surely people who have never borrowed are often simply very capable of managing their finances, without feeling the need to borrow? So aren't they more responsible, less likely to take on risky amounts of debt and more likely to budget properly for the repayments? Yet those people are penalised for being able to manage on what they earn rather than borrowing! Isn't this indicative of the problem in this country with what is considered to be normal behaviour?

Along these lines does anyone know if people who have borrowed nothing are rated better or worse than say someone who missed 1 or 2 credit card payments? Just wondering as rating them worse then really would be madness.

ps. I do have a credit card which I always repay each month so I'm not one of these people but I just think it's grossly unfair that they are disadvantaged.

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Something which I really don't understand about credit scoring is the way in which people who have never borrowed money are rated lower than those who have. While I understand that the companies are judging people's ability to manage debt they seem to be missing a point IMHO. Surely people who have never borrowed are often simply very capable of managing their finances, without feeling the need to borrow? So aren't they more responsible, less likely to take on risky amounts of debt and more likely to budget properly for the repayments? Yet those people are penalised for being able to manage on what they earn rather than borrowing! Isn't this indicative of the problem in this country with what is considered to be normal behaviour?

Along these lines does anyone know if people who have borrowed nothing are rated better or worse than say someone who missed 1 or 2 credit card payments? Just wondering as rating them worse then really would be madness.

ps. I do have a credit card which I always repay each month so I'm not one of these people but I just think it's grossly unfair that they are disadvantaged.

I agree with you in principle.

However. Would you let a stranger look after your kids? Borrow your car? Would you lend a complete stranger a thousand quid?

That's the brunt of it. Evidence of trust, simple really.

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Something which I really don't understand about credit scoring is the way in which people who have never borrowed money are rated lower than those who have. While I understand that the companies are judging people's ability to manage debt they seem to be missing a point IMHO. Surely people who have never borrowed are often simply very capable of managing their finances, without feeling the need to borrow? So aren't they more responsible, less likely to take on risky amounts of debt and more likely to budget properly for the repayments? Yet those people are penalised for being able to manage on what they earn rather than borrowing! Isn't this indicative of the problem in this country with what is considered to be normal behaviour?

Along these lines does anyone know if people who have borrowed nothing are rated better or worse than say someone who missed 1 or 2 credit card payments? Just wondering as rating them worse then really would be madness.

ps. I do have a credit card which I always repay each month so I'm not one of these people but I just think it's grossly unfair that they are disadvantaged.

Yes. Cheap credit, and reckless lending and borrowing have convinced most people it is normal to be in debt. Debt is wealth. Thank Mr Brown for this brave new world.

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Something which I really don't understand about credit scoring is the way in which people who have never borrowed money are rated lower than those who have. While I understand that the companies are judging people's ability to manage debt they seem to be missing a point IMHO. Surely people who have never borrowed are often simply very capable of managing their finances, without feeling the need to borrow? So aren't they more responsible, less likely to take on risky amounts of debt and more likely to budget properly for the repayments? Yet those people are penalised for being able to manage on what they earn rather than borrowing! Isn't this indicative of the problem in this country with what is considered to be normal behaviour?

Along these lines does anyone know if people who have borrowed nothing are rated better or worse than say someone who missed 1 or 2 credit card payments? Just wondering as rating them worse then really would be madness.

ps. I do have a credit card which I always repay each month so I'm not one of these people but I just think it's grossly unfair that they are disadvantaged.

Gosh where do I start?

What do you want, doomed?

Do you want to get even with them?

Do you think you've been unfairly denied credit and just want to get credit?

Or do you just want answers to how the system works (or well, actually, doesn't work)?

I can answer all three, but the answers are long and depend on particulars of your case.

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Something which I really don't understand about credit scoring is the way in which people who have never borrowed money are rated lower than those who have. While I understand that the companies are judging people's ability to manage debt they seem to be missing a point IMHO. Surely people who have never borrowed are often simply very capable of managing their finances, without feeling the need to borrow? So aren't they more responsible, less likely to take on risky amounts of debt and more likely to budget properly for the repayments? Yet those people are penalised for being able to manage on what they earn rather than borrowing! Isn't this indicative of the problem in this country with what is considered to be normal behaviour?

Along these lines does anyone know if people who have borrowed nothing are rated better or worse than say someone who missed 1 or 2 credit card payments? Just wondering as rating them worse then really would be madness.

ps. I do have a credit card which I always repay each month so I'm not one of these people but I just think it's grossly unfair that they are disadvantaged.

Firstly lifes not fair and banks are not there to offer "advantage" to anyone they are there to make money.

They have taken the view that they would prefer to see that someone can take on debt and manage it and pay it off etc before lending ... you'll probably find this is backed up by their experience of first time borrowers ( while you may struggle to believe it, first time borrowers are often not administratively resilient enough to make monthly payments on schedule without reminder, they often don't realise the seriousness of missing or late payments and they can be when young difficult to deal with... I wouldn't lend to them unsecured ) and either way it really matters not whether you think the practice is right or wrong... banks aren't charities , they can lend to who they like and most tend not to want to lend to those with no track record... interesstingly.. throughout the relaxing of credit criteria this is one thing that hasn't changed much so I would imagine its backed by some pretty strong data.

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Gosh where do I start?

What do you want, doomed?

Do you want to get even with them?

Do you think you've been unfairly denied credit and just want to get credit?

Or do you just want answers to how the system works (or well, actually, doesn't work)?

I can answer all three, but the answers are long and depend on particulars of your case.

No, I haven't been unfairly denied credit. As I said, I use a Credit card from time to time for convenience and always pay the balance off that month, so I guess I'm their ideal model. I just find it diffcult to understand how people who haven't borrowed are given a poor score possible just because they prefer not to be in debt?

How does the system work? As you say, maybe it doesn't work if some of those who have been given credit are anything to go by.....

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The way the system is supposed to work is that the credit reference agency updates the information it holds about 'as and when required'.

Hang on! As and when required by whom?

Well, by you. The sixth principle of the Data Protection Act 1998 states that personal information must be managed and governed according to the right of the data subject. That means not the Data Controller (the credit reference agency).

However credit reference agencies are lazy. They will ask you to submit a request for your credit record with a small fee, in writing. And when this arrives, they will update your records. Problem is, this doesn't sit well with the data protection act which says that they must do it as required.

So. If you like, you can ask your bank for a copy of the information they have received on which they have based their decision not to grant credit from the credit reference agency and the bank is legally obliged to give you a copy of this informaiton. They might start making excuses about it not being policy to give out that information (they probably did not do the credit check in front of you), but they are legally obliged to give you a copy of the information they received from the CRA.

On this piece of paper, there will be some codes and shorthand, and the bank hsould be able to help you decipher them. There will be mistakes. On the basis of this, you can point out to the bank what the mistakes are and then ask the credit reference agency for compensation.

Remember, once you request your credit reference from the CRA, they will update it. But only after stiffing you first in front of your bank manager.

Edited by Sir Sidney Ruff-Diamond

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banks aren't charities , they can lend to who they like and most tend not to want to lend to those with no track record... interesstingly.. throughout the relaxing of credit criteria this is one thing that hasn't changed much so I would imagine its backed by some pretty strong data.

Agreed they are not charities who have to lend to anyone. I'm not sure I agree that their decisions are always based on the best evidence though as the current market has bourne out. Perhaps the criteria isn't wide enough? I guess they can't take account of people's savings habits as well?

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No, I haven't been unfairly denied credit. As I said, I use a Credit card from time to time for convenience and always pay the balance off that month, so I guess I'm their ideal model. I just find it diffcult to understand how people who haven't borrowed are given a poor score possible just because they prefer not to be in debt?

How does the system work? As you say, maybe it doesn't work if some of those who have been given credit are anything to go by.....

No, I haven't been unfairly denied credit. As I said, I use a Credit card from time to time for convenience and always pay the balance off that month, so I guess I'm their ideal model. I just find it diffcult to understand how people who haven't borrowed are given a poor score possible just because they prefer not to be in debt?

How does the system work? As you say, maybe it doesn't work if some of those who have been given credit are anything to go by.....

I totally agree in principle. However I can understand why the lenders do this. I am sure they have masses of models that show first time borrowers are relatively risky - for whatever reason. This is of course unfair on those who have never borrowed simply because they are excellent with money.

One thing I think should be included in credit scores to help this in my opinion. Present bank balances.

Someone with no credit history + no savings = I can understand why a bank would be wary.

Someone with no credit history + good wad of savings = Surely should be an ideal candiate for a loan ?

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Something which I really don't understand about credit scoring is the way in which people who have never borrowed money are rated lower than those who have. While I understand that the companies are judging people's ability to manage debt they seem to be missing a point IMHO. Surely people who have never borrowed are often simply very capable of managing their finances, without feeling the need to borrow? So aren't they more responsible, less likely to take on risky amounts of debt and more likely to budget properly for the repayments? Yet those people are penalised for being able to manage on what they earn rather than borrowing! Isn't this indicative of the problem in this country with what is considered to be normal behaviour?

Along these lines does anyone know if people who have borrowed nothing are rated better or worse than say someone who missed 1 or 2 credit card payments? Just wondering as rating them worse then really would be madness.

ps. I do have a credit card which I always repay each month so I'm not one of these people but I just think it's grossly unfair that they are disadvantaged.

This bit of information is only one of many that make up credit-scoring systems (banks won't give you an exact breakdown of their method nor the loading just in case you make up answers to suit).

Imagine that you're looking for someone to drive you somewhere and you have a choice of two people. The first one says - "I've never taken the car out and I've never had an accident." The second says - "I've driven a few times and, although I've had a few close shaves, I've never had an accident." Who do you use?

The lender is not looking for a non-borrower; it's looking for someone with a proven repayment record.

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Agreed they are not charities who have to lend to anyone. I'm not sure I agree that their decisions are always based on the best evidence though as the current market has bourne out. Perhaps the criteria isn't wide enough? I guess they can't take account of people's savings habits as well?

Well, in addition to the above, many banks do not collect white data on their customers. Funny that. They make a note when you've done something bad, but don't take any notes when you have a good credit record.

Why on earth not?

Well, if you run a bank the last thing you want is for your customers to run off to another bank with their pristine credit records full of commercially attractive lending histories. So they don't record anything good about you.

The good news is that you can use this to your advantage. Each bank does not keep a tally of for example, what you credit limit is, or how many credit cards you have - that is personal infoamrion for which they have no access under the Data Protection Act unless they are law enforcement agencies (which banks are not).

So you can say that you have ten store cards and a credit limit of £5k. And *potentially* you could have instant access to credit.

Unfortunately the credit reference system is broken. You can either become a victim of it, or understand how it works and use the system's weaknesses to get what you want when you think you're being judged unfairly.

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Your alien logic is different from our earth logic.

You are saying, well it should be that people who have never driven a car before are less of a risk of crashing, than people who have crashed before. I mean come on, if they can manage on using the bus why should they have to pay high insurance??

Credit scores are to do with experience of handling credit. If you have lots of credit cards, and never use them or always repay them, then they know you are not going to go mad and end up with £1000s of debt you cant repay. If you have a loan that you paid off every month, then chances are you will do so again.

If you have done none of these things, then you are an unknown risk.

I would say to anyone get a credit card as early in your life as you can and buy your general items on it, and clear it each month. I know a lot of people who cant handle this, and end up having to cut them up!

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Something which I really don't understand about credit scoring is the way in which people who have never borrowed money are rated lower than those who have. While I understand that the companies are judging people's ability to manage debt they seem to be missing a point IMHO. Surely people who have never borrowed are often simply very capable of managing their finances, without feeling the need to borrow? So aren't they more responsible, less likely to take on risky amounts of debt and more likely to budget properly for the repayments? Yet those people are penalised for being able to manage on what they earn rather than borrowing! Isn't this indicative of the problem in this country with what is considered to be normal behaviour?

Along these lines does anyone know if people who have borrowed nothing are rated better or worse than say someone who missed 1 or 2 credit card payments? Just wondering as rating them worse then really would be madness.

ps. I do have a credit card which I always repay each month so I'm not one of these people but I just think it's grossly unfair that they are disadvantaged.

Lenders don't make enough money from 'good' payers.

They are classed as a nuisance.

They really want to lend to folk who can't make repayments so they can rack up the interest and penalties and stick

it on their balance sheets as an asset, increasing the lenders 'worth' on paper so the directors can give themselves

bigger bonuses.

They then conveniently forget that this debt is never likely to be repaid - but this is then a problem for future - the current

directors will be long retired when the SHTF.

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This bit of information is only one of many that make up credit-scoring systems (banks won't give you an exact breakdown of their method nor the loading just in case you make up answers to suit).

Imagine that you're looking for someone to drive you somewhere and you have a choice of two people. The first one says - "I've never taken the car out and I've never had an accident." The second says - "I've driven a few times and, although I've had a few close shaves, I've never had an accident." Who do you use?

The lender is not looking for a non-borrower; it's looking for someone with a proven repayment record.

Fair point. (Although I'm not sure I'd get in the car with the guy who had 'had a few close shaves' either!) As you say this bit of info is only one of many that makes up the system. Are savings records taken into account as well? Surely they should be.....

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...........................

Unfortunately the credit reference system is broken. You can either become a victim of it, or understand how it works and use the system's weaknesses to get what you want when you think you're being judged unfairly.

Did Gordon touch it?

p-o-p

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The banks decisions are based on statistical models. They do not look at each individual but basically run a set of factors about that individual through a model. If they have no information about a person to run through a model then the model gives a conservative answer. So somebody with little credit history has little information to run through the model.

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Lenders don't make enough money from 'good' payers.

They are classed as a nuisance.

They really want to lend to folk who can't make repayments so they can rack up the interest and penalties and stick

it on their balance sheets as an asset, increasing the lenders 'worth' on paper so the directors can give themselves

bigger bonuses.

They then conveniently forget that this debt is never likely to be repaid - but this is then a problem for future - the current

directors will be long retired when the SHTF.

This seems to be the business model employed. Although if they rack up enough in fees etc... it wouldn't matter if the capital was never paid off.

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The banks decisions are based on statistical models. They do not look at each individual but basically run a set of factors about that individual through a model. If they have no information about a person to run through a model then the model gives a conservative answer. So somebody with little credit history has little information to run through the model.

That's how credit reference agencies would prefer retail banks (their customers) and account holders to think it works.

In reality it's nowhere near as scientific or accurate as that.

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The banks decisions are based on statistical models. They do not look at each individual but basically run a set of factors about that individual through a model. If they have no information about a person to run through a model then the model gives a conservative answer. So somebody with little credit history has little information to run through the model.

Would it not be simple to add in savings details to this model ? I suppose the clue is in the name 'Credit score'. They want a score based on your credit history. I imagine after this point they may take into consideration your savings/assets whatever. However how many people fall at the first hurdle simply due to a lack of credit history ? Fair few I imagine.

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That's how credit reference agencies would prefer retail banks (their customers) and account holders to think it works.

In reality it's nowhere near as scientific or accurate as that.

Its exactly as scientific as that. At Lloyds/HBOS at least.

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Would it not be simple to add in savings details to this model ? I suppose the clue is in the name 'Credit score'. They want a score based on your credit history. I imagine after this point they may take into consideration your savings/assets whatever. However how many people fall at the first hurdle simply due to a lack of credit history ? Fair few I imagine.

The banks only have information regarding savings an individual has with that particular bank.

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They want a score based on your credit history.

Not really. They want a score that will indicate to them your likelihood of defaulting on your payments. They base their scoring on their own and others' experiences. Let's make up some examples:

Home owners have a better record than tenants.

People who have lived a long time in one place have a better record than those who hop about from one place to another.

Teachers have better record than actors.

People who run their current accounts responsibly have a better repayment record than those who don't.

Those aged 40-65 have a better record than those 25-35.

Left handed people have a better record than right handed ones.

Now, imagine you're an actor, aged 30, who's moving about all over the place, living in flats and digs and had a little bit of bother on your current account mainly because theatres prefer left handed actors to you and you need a loan. Strangely enough, on the very same day, a boring old teacher with attributes opposite to yours turns up at the bank looking for a loan. They've only got enough money for one of you. Who's going to get it?

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Its exactly as scientific as that. At Lloyds/HBOS at least.

No it isn't. That's who I banked with. HBOS' processes around credit referencing received a warning from the Information Commissioner after my case.

Basically, HBOS can use whatever method they like for credit referencing - they can use tea leaves if they like - but if it's shown to be unreliable, they can't rely on it or if they do, they can be held legally responsible for any costs incurred as a result of an erroneous decision.

So there.

Edit: I guess that's also why Lloyds/HBOS got their sums so retardedly wrong in recent years and ended up being lame duck banks.

Edited by Sir Sidney Ruff-Diamond

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