Introduction
A credit score is a three-digit number that can determine whether a loan application is accepted. For credit union using risk-based pricing it can determine the interest rate charged.
Credit scores are provided by the three main Credit Reference Agencies, Experian, Equifax and TransUnion.
There are many factors that determine whether your score is bad, fair, good or excellent. A score can vary from month to month.
In this series of articles we explain what factors contribute to your score and what might indicate that a member has a poor, fair, good or excellent credit profile.
Credit score
The credit score used by NestEgg is derived from TransUnion. The range is 471 – 770.
For the general population a credit score of 670 results in a bad rate of around 2%. A credit score of 610 may result in a bad rate of 5%. The results will vary from credit union to credit union.
These are the default policy rule settings for estimated bad rates by accept, refer or decline.
What is a bad loan?
A loan is considered bad if the credit account information for the borrower shows the:
Granted loan has a status of 3 or higher (that is three* payments have been missed during the loan term)
the borrower has recently been subject to a County Court Judgement
the borrower has recently been subject to a form of insolvency
What drives a score?
There are literally hundreds of factors that contribute to a credit score.
A lot of weight is given to an applicant’s repayment history with other credit agreements including credit cards, bank loans and overdrafts.If someone misses a payment the score goes down. If a borrower keeps up with all their payments the score improves. If several payments in a row are missed the score can fall dramatically. This may indicate that the debtor has ‘defaulted’ on an account.
Demographic factors influence a credit score. This can include age, how long someone has lived at a property or been in their current job. Most lenders will reject an application if the borrower is not on the electoral roll.
Lenders will usually reject an application if an applicant has recently been made bankrupt, taken out a Debt Relief Order or entered into an Individual Voluntary Arrangement.
You may also find our article on credit profiles helpful. It shows what characteristics are typical for those with excellent, good, fair or poor credit profiles.
*this is a monthly equivalent, the actual number of payments missed will depend on the repayment schedule, but the borrower is at least 90 days in arrears for repayment schedules that are weekly, fortnightly, four weekly or monthly.
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