Whether you borrow money to a friend, sister or aunt, you decide almost intuitively – you just know these people, their professional, financial and family situation, as well as the approach to money. Thanks to this, you are able to assess whether this person will give you the money back, and thus – is it financially reliable. Unfortunately, such knowledge does not have a bank. Therefore, before lending you money, it will analyze information about you using bank scoring.
What is bank scoring?
You intuitively judge whether a friend will give you the money back, and banks forecast it using scoring, i.e. customer rating. Under this slogan is a method that allows them to assess your financial credibility. It means estimating how risky it will be to lend you money and whether you will have a problem giving it back on time.
How is this assessment done? Everything happens using statistical tools. Banks collect information and build your profile, i.e. the profile of a potential customer, on their basis. Then they compare it with the profiles of people who have already been granted loans and who pay them back on time.
What are the scoring models?
Although the bank creates only your one profile based on its own scoring method, it does so by combining two models:
- behavioral scoring – i.e. analysis of how you have used financial products so far,
- Application scoring – i.e. analysis of your personal and property data.
How does banking scoring work? What is taken into account when calculating it?
How do banks calculate scoring? They build your profile based on collected data. What? Various! Which can probably surprise you – not only based on how you behaved so far as a borrower. What else affects your rating? Among others:
- occupation and seniority,
- type of employment,
- the frequency of changing jobs – how long have you been employed by your current employer, how much time did you work for the previous one,
- residential status – not only if you have your own house or apartment, but also how long you live at a given address and in which district,
- marital status and age ,
- amount of monthly income ,
- number of dependents ,
- balance of bank accounts ,
- contracts with mobile telephony,
- owning a car
- owned payment and credit cards, credit limits etc.,
- life insurance.
What affects bank scoring?
On the decision whether to grant you a loan. It is a tool that allows banks to minimize the risk of signing a contract with an unreliable customer. And so: every coincidence of your profile with people who pay their debts on time is points for you. The more points and similarities, the more likely you will be granted a loan. A high number of points also often means better credit terms, e.g. a lower margin.
After analyzing these data, the bank calculates the so-called cut-off point (with English. cut-off score), the lower threshold to grant you credit, and on this basis it seems his decision:
- If you get fewer points, you will receive a negative credit decision from the bank.
- If slightly above this threshold, the bank will probably ask you to provide additional collateral, make the decision to grant a loan conditional on purchasing additional insurance, or grant you a lower loan amount.
- If you get much more, you already have the loan in your pocket!
What does credit scoring say about you?
A lot! It illustrates your financial, professional and family situation. It shows whether you are a reliable customer, whether you can be trusted and whether you make informed decisions. On its basis, the bank can estimate with high probability whether in the near future you will have a problem with the repayment of the loan, and I assure you that he knows it better than even you.
What reduces your scoring?
Although it would seem that high earnings and no backlog of obligations will guarantee you good scoring, unfortunately this is not the case. Lack of credit history, a minimum of six months or a large default rate in your age group will also reduce your credibility in the eyes of the bank. What else lowers your scoring? For sure:
- untimely repayment of previous loans / credits,
- late repayment of installments for equipment,
- untimely payment of telephone, internet bills, etc.,
- no credit activity,
- taking many loans in the past at the same time,
- credit card debt / exceeding its limits,
- debt in a renewable limit,
- a large number of refused credit decisions.
Statistics say that people who use virtually the entire available credit limit are more likely to have problems paying their installments in a timely manner than those who use the limits in a moderate way. However, they say nothing about those who do not use them at all, because they cannot say – they lack data on the subject. If you’re in one or the other group, you probably won’t do very well in banking scoring.