HOW CREDIT APPLICANTS ARE SCORED.
Length of residence:
How long have you lived at your present home? The longer the better. You want to be thought of as stable and reliable. A long stay adds points. Although this may unfairly discriminate against the young and upwardly mobile, it lets the lender know if you are more likely to remain in your present situation and be around to repay the obligation. Many lenders have systems that give high points to recent moves tied to career advancement.
Home ownership:
Owning your home, either outright or with an attached mortgage, is far and away the best scenario. Home owners are considered stable, dependable risks. In descending order, the better loan risks are: homeowners, renters of an unfurnished home, renters of a furnished home, those living with parents or other relatives, other situations. No distinction is made between homeowners who have a large amount of equity in their homes or those who are deeply mortgaged.
Geographic location:
Credit scoring is adjusted for geographical differences. An institution's servicing area may be divided into many catagories.
Length of employment:
As with length of residence, the longer the better. Creditors want applicants who have a steady, secure source of income. Holding the same job for many years indicates that the same should be true in the future. A short length of employment is less assuring to the lender.
Occupation:
This is difficult to assess. While it seems that the occupation of the borrower would be a good indicator of his or her character, there are mant different ways to make the classification. Also, the classification of employment under the scoring system is somewhat subjective. The officer reviewing the application must determine into which catagory a job falls. A certain job may then be assigned a lower score by one reviewer than by another. Therefor, it is not surprising that according to some systems, higher points are awarded to self employed professionals, retirees, or to employees of large corporations.
The best scoring occupations, from top to bottom are: teachers, accountants, engineers, business executives, supervisors, dentists, pilots, laboratory technicians, farmers, clerical workers, civil servants, nurses, pharmacists, newspaper employees, policemen, firemen, military officers, railroad workers, skilled technicians and equipment operators, sales clerks, salesmen, bus and truck drivers, janitors, mechanics, contractors, carpenters, plumbers, electricians, tenant farmers, lawyers, self employed businessmen, unskilled factory workers, cooks, painters, miners, retirees, free lance artists, musicians, barbers, students, nurses aides, cab drivers, common labourers, housewives, restaurant, hotel or amusement workers, lower level military personnel, bartenders, farm hands, ande welfare workers.
Age:
Older is not always better, until you raech 40. From there on the older you get, the more points you receive. Under 25 and through the mid 30's are the lowest scoring ages. Anyone under 25 gets low marks. But there again, this is the group that usually has no proven credit record. Young people have trouble getting and establishing credit. People in their 30's generally have lower incomes but higher expenses, trying to buy a home, raise several children, and establish themselvs in their career. This is when people are most likely to declare bankruptcy. Thus, bankers watch this age bracket carefully.
Income:
The higher the income, the more points your application will earn. It's only logical. However, middle income applicants are often less likely to repay a loan than lower income people. The real key to determining repayment viability is to determine the amount of disposable income a person holds and the overall stability of his or her income. Those figures are more difficult to obtain and to verify, so many lenders are more inclined to base their judgement solely upon gross income.
Telephone:
Having a home telephone in the borrowers own name indicates stability. Not having a telephone can look suspicious. Some systems give more points for more than one phone.
Number of dependents:
Having between one to three dependents scores you high because it means you have a certain level of responsibility and stability. However, having more than three decreases the number of points awarded. If you have too many you will lose points. It is believed that too many dependents strains the budget and makes it difficult for you to repay a loan when there are so many other demands on your budget.
Citizenship status:
Non U.K. citizens get negative points. It is impossible for creditors to collect anything if someone flees the country. However, banks also realise that most non citizens are meticulous about repaying their obligations.
Bank accounts:
Having both a check and savings account gains you points. Not having any account is very suspicious. You can amass more points if you have your accounts with the bank where you are applying for credit.
