The scoring system used for FHIs is in test. The scores will be reviewed and changed with feedback.
The scores do not currently influence decisions. The colour of the % figure in the middle of the pie chart reflects the outcome of the decision which is still based on TransUnion data.
We intend to move to decisions based on FHIs by September 2021.
Here is an overview of the initial beta scoring system:
Risk factors:
Credit score is a factor but not the driver for decisions. The Red, Amber or Green (RAG) status is linked to the estimated bad rate as predicted by credit score:
Over 630 (bad rate <3%) = 15 points
570 to 629 (bad rate <5%) = 10 points
Under 569 (bad rate > 5%) = 5 points
During the beta test we will continue to assess the likely bad rate by credit score.
Presence on the electoral roll – at current address - is a sign of stability.
On the electoral roll at this address = 10 points
On the roll at this address at some point in the past = 5 points
Never on the electoral roll at this address = 0 points
Indebtedness
This is a proxy for affordability. If credit limits are exhausted is the applicant living beyond their means? How much spare money is there each month to repay debts?
Revolving credit usage. Where someone has access to credit but are not utilising available balances, this suggests that they are living within their means.
An applicant at their limits suggests someone is living beyond their means or continuing to struggle to repay historical debt.
Scores are based on the usage of credit card and overdraft limits:
Under 15% used = 15 points
Between 16% and 50% = 10 points
51% and over = 5 points
Payments vs income. This is a disposable income calculation; the monthly debt ratio. How much spare money does someone have after meeting their credit commitments?
If a debtor is spending more than one quarter of their income paying off debt is this too high?
Under 10% = 10 points
Between 11% and 25% = 15 points
26% and over = 0 points
Payments
Defaults are weighted more than missed payments; they show consecutive missed payments and are an early indicator a debtor is getting into difficulty.
Despite this, a liberal interpretation is often required. Credit unions tend to forgive small defaults, especially if they are for mobile phones. The following is a working assumption:
None = 15 points
1 under £500 = 10 points
More than 1 = 5 points
Missed payments are an earlier indicator of payment difficulty.
If unresolved they will lead to defaults. Status 1,2,3,4,5,6 is the number of consecutive missed payments. After 6 an account should be flagged as a default.
None = 10 points
Status 1 = 5 points
Status 2 or higher = 0
Note: if there is a default, missed payments will score zero, because the status will be greater than 6.
Legal
Legal action is the end of the road. It means a borrower has reneged on credit agreements to such an extent that a creditor has invested money in either taking them to court or making them insolvent.
This could also be the result of a debtor making their own application for a debt remedy like a Debt Relief Order or Individual Voluntary Arrangement.
Insolvency. Someone going through bankruptcy, a Debt Relief Order or Individual Voluntary Arrangement (or the Scottish equivalents) will appear here.
On the one hand once a person has exited insolvency, they may be considered to have a clean slate. However, the evidence is that underlying issues that led to the insolvency don’t go away. A recent discharge is not a green light, it still needs flagging.
No insolvency = 15 points
More than 2 years ago = 10 points
Less than two years ago = 0
CCJs. 95% of County Court Judgments (CCJ) are taken out by creditors. It is an unusual step, often used to punish a debtor e.g. in the case of first payment defaulters.
No CCJs = 10 points
1 CCJ under £500 = 5 points
More than one CCJ = 0 points
Summary
Watch this video for a summary: