I’m curious about what Monzo thinks of the current process of credit scoring, in terms of generating, updating and just simply reading them.
The three top providers - Experian, CallCredit, Equifax - all have much the same type of data collected, but each scored in different ways.
This becomes problematic when, for instance, someone may have an average score with Equifax and CallCredit, but and an excellent score with Experian. They may look at their excellent Experian score, apply for a mortgage that they know they can afford, but the mortgage provider might search against CallCredit or Equifax leading them to be declined and negatively affecting their score further.
This also creates confusion as to how to improve ones score, referenced in this extract from MoneyWise in December 2015 -
This lack of universal standards can also lead to credit rating agencies giving mixed messages on the best way to improve your score.
For example, getting rid of credit cards you don’t use any more is a good idea to improve your score, says Lisa Hardstaff, credit information expert at Equifax: “If you’ve already got £40,000 credit, lenders might ask why you want another £10,000.”
Experian’s James Jones agrees, but adds that using too much of the credit available to you can also be damaging: “In our experience, it’s a good thing to have low utilitisation [using a small amount of your available credit]. The fact you’re not reliant on it shows you are creditworthy.”
Some experts also believe that the way information is collected is in need of modernisation. One idea is to utilise the data of your social network. If they began enforcing that then I would have no choice but to begin unfriending certain people (online, but not in public) and others may unfriend me too.
The article continues…
In August, Facebook secured a patent that gives someone a credit score based on the scores of their contacts. In the words of the patent application: “When an individual applies for a loan, the lender examines the credit ratings of members of the individual’s social network who are connected to the individual through authorised nodes. If the average credit rating of these members is at least a minimum credit score, the lender continues to process the loan application. Otherwise, the loan application is rejected.”
The idea that your credit score could be affected by your friends’ behaviour is scary stuff, although there’s no suggestion that this technology is in use yet. But several companies are using social media and other digital information to process credit applications in different ways, and they’re all very secretive about the process.
Pariti have already recognised that there is a problem and things need to change and are therefore intending to develop their own credit scoring system,
… so they’ll be a fourth contender! Old quote from I don’t know who -
There are 3 different competing “standards”, we need to agree on a single one. Here’s what we propose… 1 year later… There are 4 different competing “standards”.
What I think the country needs is a single agreed standard of assessment, and actually enforce it, without complication for the customer, or at the very least, one place to view all credit reports at one unified cost.
Will Monzo produce its own credit scoring system, or will it partner with one or more of the already existing providers, or will simply avoid credit scoring all together?