Credit scoring – how it works

Credit scoring – how it works

Scoring is a concept that everyone who applies for a bank loan should be familiar with. It depends on the result of the scoring that the bank will grant you a loan. Some criteria for this assessment may seem surprising.

Scoring – what is it?

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Scoring is a point method of assessing the customer’s creditworthiness, prepared on the basis of an analysis of specific features and criteria. What influences the setting of these criteria? Individual banks constantly analyze how their clients pay their liabilities and on this basis, they create the profile of an ideal borrower.

If the statistics of bank A show that the most reliable customers are people with a family, no more than 50 years old, working in the service industry and having higher education, then these features will be scored the highest in bank

A. Of course, in Bank B the situation may be completely different: they’re the most reliable customers can be lonely people with secondary education, working in the production industry. And just such potential borrowers Bank B will score the highest.

Here are some selected criteria that can be analyzed by banks:

  • profession
  • education
  • place of residence
  • period of residence at the current address
  • period of employment in the same company
  • earnings
  • owning a telephone
  • marital status
  • having life insurance
  • owning savings products
  • owning a car

Customer responses to questions regarding individual criteria are scored in a specific way, with each bank setting a different score. The bank also defines the so-called cut-off point, i.e. the number of points that a potential customer must reach to obtain a loan.

If a person receives a lower number of points, their application will be automatically rejected. What if the number of points you receive will only slightly exceed the cut-off point? In this case, the bank may grant you a loan but require additional security.

Credit scoring – what do you need banks for?

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Getting a loan from a bank can be more difficult than getting a loan from a loan company. Why? The bank must apply much stricter criteria. The money he borrows also comes from deposits, which in fact belong to his clients. That is why banks use tools such as scoring.

From the bank’s perspective, this method is quite easy to implement. Detailed information about the potential borrower is entered into the system, which analyzes the individual characteristics of the client, awards points and decides whether the person is reliable or not.

In this way, the decision to grant a bank loan is independent of the viewpoint of one or another bank employee and is objective. Which does not mean, however, that the system cannot be wrong? It is easy to imagine the situation that a person who receives a high score in the scoring process will not prove to be a reliable customer.

It can also be the opposite – a reliable customer will be rejected only because in terms of characteristics it resembles people who have shirked their debts.

Every bank has its own system

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The fact that every bank has its own system is also good news for the customer. It means that if your application is rejected in one bank, you can apply for a loan in another.

You always have another option – instead of going to the bank, you can contact a company that offers quick loans, which you can also pay back in convenient installments. Good Finance family offers such loans.