What is Credit Scoring?
Credit scoring is a system used by credit providers to predict the probability that any credit granted to you will be repaid.
When you apply for credit, a lender will compare your credit score to their cut-off point. If your score falls below their cut-off point, they consider you too risky and will refuse to grant you credit.
Why should I repair my credit score after bankruptcy?
Like most people in life, you will almost certainly need a car and want your own house. Unless you have thousands of pounds in a bank account, which is very unlikely after bankruptcy, you will need a loan, a mortgage or other kind of finance.
If you are going through bankruptcy, or are a discharged bankrupt, then your credit score will be low.
Therefore, you will need to improve your credit score to avoid high fees and high interest charges. It's important to start early, as increasing your credit score will take time. It may take years!
How is Your Credit Score Calculated?
Contrary to common belief, your credit score is not something that just exists. Equally, it is not derived at a credit reference agency. It is the lender you are applying to that calculates it.
A credit scorecard will be used to score you. The scorecard shows how many points you should be awarded for each piece of information that:
- You provide them with
- They hold about you
- They obtain from other organisations such as a credit reference agency
For more information on what is used to calculate your credit score, see improve my credit score.
How Does Credit Scoring Affect me as a Discharged Bankrupt?
Unfortunately, bankruptcy is looked upon very negatively by most lenders.
Fortunately, there a specialist group of finance companies called "sub prime lenders" that specialise in lending to people with bad credit. These companies have a cut off point lower than your traditional high street lender.
If the decision making process is completely automated then your credit score will be compared to the providers cut off point. If you score above, then your application will be accepted. If you score below, your application will be declined.
If the decision making process is partially automated or completely manual, then your application will proceed to the next stage of the decision making process.
If your application for credit is refused, you have options.
See declined credit.
As mentioned previously, credit providers that specialise in the adverse credit market will have a low cut off point and will be more likely to grant you credit if you have experienced bankruptcy.
What can I do to Improve my Credit Score?
There are tens and even hundreds of factors that can be used to determine your credit score. Please note: credit scores do not take account of your sex, religion, race, political beliefs, sexuality or criminal record.
See improve my credit score for more information. It is critical that you improve your credit score if you are likely to seek credit after bankruptcy.
