Understanding credit scores

Before a lender can make you an offer regarding the terms of your loan package, many things about your personal and financial circumstances are first taken into account. Details such as the status of your employment and any current debts or liabilities are taken into consideration, along with your credit history. This is essentially the kind of information the lender evaluates when conducting a credit check, as these details—among other many other factors—will ultimately determine your credit score.

Regardless of the particular loan package you are applying for, all lenders will conduct a credit check. This is done in order to assess the level of risk you present to them as a borrower, based on your credit history. Generally, by evaluating your loan application this way, the lender will be able to determine what kind of terms to offer regarding the amount you can borrow and the interest rate you will be charged.

A third-party credit reference agency (i.e. Experian) will provide the lender with your credit reference. Any financial difficulties you may have had in the past are disclosed, particularly whether you missed any payments on previous debts and how often you have applied for a loan from other lenders. Since most individuals have a number of credit in the form of store cards and credit cards, for example, only anything that may stand out such as disproportionate loan or credit applications will raise a red flag. Basically the lender is on the look out for anything in your credit history that may suggest you are inconsistent with meeting your financial obligations or that you already have many other existing financial commitments.

During the credit scoring process, the lender determines a score for each item in your loan application. This is based on each lender’s internal criteria and your application will be approved if your overall score meets their requirements. Whether or not your loan is approved, the lender cannot tell you your credit score or otherwise give you any information regarding their credit scoring process. This nondisclosure is a common practise to prevent possible cases of fraud.