Banks assess loan applicants based on what they call a credit score. It’s important to understand that the assessment is based more on profit than on risk, meaning even the most solvent or high quality applicants can still be rejected.
One of the biggest misnomers in the lending business is that there is a universal blacklist, when in fact companies “score” customers based on their individual ratings, which differ depending on whether you’re applying for a loan, mortgage, overdraft, credit card or another product. While there is no universal blacklist there is universal risk, or in other words, a bad risk for one bank is a bad risk for all.
You can, however, get access to company credit scores that are listed at Companies House UK. Every company is required to register annually and depending on the size, it’s possible to view information like profit and loss accounts or balance sheets. You can look up a company credit score at Duedil.com for free to find out how your company, supplier or debtor’s credit history rates.
It’s important to remember that lending exists to benefit the lender, not the other way around, and the system works on a basis of generalities rather than personalised vetting procedures. Banks’ ratings are not publicised and they differ depending on the bank and product you choose, although of course there are similarities. Most banks would rather deny a few high-quality applicants than let unprofitable ones slip through the net.
In a sense, banks are not looking for wealthy customers but for their ideal customers, which may explain why their rejections sometimes seem arbitrary. At the time of applying, you may be rated according to a certain socio-economic group or age bracket, your prior borrowings and repayments or according to the electoral register (so banks can confirm that you are who you say you are).You may also be scored according to the products the banks would like to sell you in the future.
Banks review a wide range of information prior to make their decision. Central to this is the credit history held by the three credit reference agencies in the UK: Experian, Equifax and Callcredit. This data is used to evaluate the potential risk or profit that the applicant presents to the lender. Two factors that affect this risk is the amount of debt you owe and the rate at which you’re depositing funds.
It’s important to remember that credit is not something all applicants automatically qualify for. Lending credit is done on a basis of specific criteria that are used to review applicants’ personal information. Whether you’re applying for credit via a store, bank or other financial institution, it’s important to be honest on the application forms and to do some careful research before settling on a product.