Credit scoring – pure mathematics
Credit scoring is another tool, after verifying creditworthiness and credit history, that a bank can use before deciding whether to lend to a customer. The scoring, expressed in points, shows how likely it is that the debt will be repaid in the next 12 months – the higher the score, the better the chances of receiving funds from the bank.
How is a credit score calculated?
In order to estimate the risk, banks analyze the situation in which the prospective borrower finds himself, and then compare it with their customers who are paying or have managed to pay off their debts. The profile of the customer being evaluated by the lender should therefore overlap as much as possible with the information the bank has gathered on those customers who have not had problems repaying their loans.
What affects credit scoring?
People who want to make a credit commitment often fall prey to the mistaken belief that a “clean” credit history or timely repayments will be enough to get the desired amount from the bank. In fact, financial institutions verify many other elements.
The bank will certainly check a potential customer’s age before deciding whether to grant a loan, as will his marital status, the number of people in the household and how many dependents he has. Even what province or region the loan applicant lives in may be relevant.
It will further screen the respondent’s education , check the occupation (and even the employer) and, based on this, assess the stability of employment.
Also relevant to the outcome of a credit scoring may be whether the borrower has life insurance, what his or her bank account balance is, and whether and how he or she uses debit and/or credit cards or an account limit.
It is also an obvious step to check all your liabilities (including loans, other credits, leases and even maintenance obligations). The bank may also be interested in the customer’s housing status, and if the customer maintains an account with another bank on a daily basis, the lender may ask for bank references.
BIK credit score
The Credit Information Bureau is one of the institutions that collect information about individuals and companies with credit obligations. The scoring conducted by the BIK can be used by lenders in the process of vetting potential customers – all they have to do is use the BIK report generated for a given person or entity.
Important!
Banks are not the only ones who can check our credit history and credit score with the BIK. So before you start trying to get a loan, it’s a good idea to verify your credit potential yourself.
How do you check your BIK score?
To do this, visit the website of the Credit Information Bureau and download the BIK Report (for individual customers) or the BIK My Company Report (for business customers). A single report generation costs PLN 39, regardless of the option selected. In the prepared document you will find not only information about your credit history, current and past obligations, but also learn about your credit score (it will be expressed by a number from 1 – 100).
Important!
If you have never paid off credit obligations before, your BIK report will lack scoring information because the Credit Information Bureau will not have enough data to make an assessment.
Bank scoring
The final rating that a bank will give to a person or company that applies for a loan, made on the basis of the methods adopted and analyses performed, is called bank scoring. The lender, in order to obtain as much information as possible, may use various indicators, an example of which is the credit scoring described extensively earlier. What other tools do banks have at their disposal?
- Application scoring – this is the most common method applied to new customers of a bank. It is also used if the bank is launching a new type of loan or credit (and thus there is no comparison among previous customers). In the application scoring, the customer (his wealth, occupation, demographics, etc.) and the submitted application are evaluated.
- Behavioral scoring – this type of assessment is reserved for the bank’s regular customers. The analysis then includes the activities undertaken in bank accounts, seniority as a customer in the bank, timeliness in repaying obligations, and even the average turnover of funds. Data for behavioral scoring usually comes from the one-year period prior to the credit application.
- Fraud scoring – this menacing-sounding method, in a nutshell, involves assessing a customer’s propensity to abuse, deliberately break contracts and even commit financial crimes.
Important!
Banks do not use a unified customer rating system. It may be that for one lender, the timeliness of past obligations will be more important, while for another, working in a valued industry (such as software development) will be more important.
Credit scoring and what’s next?
With plans to take out a larger loan, we make sure that our actions don’t tarnish our scoring – we pay all our obligations on time, and we don’t exaggerate the number of loans and smaller loans. Finally, we decide to check the scoring (for example, in the BIK) and…
Option 1
…We get a high rating. Can we now apply and wait for the money? The matter is not so simple. Of course, a high scoring value indicates that the timing is right, and you certainly shouldn’t postpone your application unnecessarily. However, it is possible that, despite the score, we will not get a loan – banks often strongly raise the requirements if we apply for a loan of a very high amount (for example, if we want to build our dream house).
Option 2
…Our rating is very low. Does this mean that our credit plans have just gone down the drain? In most cases, yes, although this is not an ironclad rule. However, it is worthwhile to analyze our credit history – many times it only takes a few missed deadlines to deprive ourselves of credit for a while. That’s why it’s a good idea to check your credit score before you start trying to get a loan.
What to do if the application is rejected?
In such a situation, we don’t always have to abandon our plans – we will first write a letter to the bank asking for reasons for the refusal.
If, after receiving a response, we do not agree with the assessment, we can file an appeal, which will result in a reconsideration of the application – this time perhaps to our benefit. However, if we believe that the bank’s reasoning is correct, we are left to try to improve our credit score. How to do it? Here are some tips:
- Take care to pay your obligations (including household bills) on time;
- Stabilize employment – full-time employees should seek an indefinite contract;
- In the case of companies, the more experience the better – many borrowers pay attention to how long a company has been in business. Young companies don’t have much chance for credit. Some banks will consider applications from entrepreneurs with at least one year of experience;
- Give up credit cards and limits, do not multiply credit or installment obligations;
- Don’t apply for credit at several places at the same time.
