Monzo's Approach To Credit Scoring

Monzo Chat
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Thanks @beningreenjam for kicking this topic off! I’ve read every post and contribution, and it’s all really interesting stuff! My blog post on our approach to overdrafts :money_with_wings: is quite relevant and you might like to have a :eyes: if you haven’t already.

I’ve spent much of the last 20 years or so working in various :bank:s and lending/borrowing (depending on your perspective) fascinates me. In my blog I raised a topic that I wanted some feedback on “How we work out what is the ‘right’ amount we are able to lend you” and our approach to credit scoring is absolutely part of that.

First up the term ‘credit scoring’ has many meanings. It can mean:

  • a consolidated credit score produced by one of the 3 bureaus (Experian, Call Credit and Equifax) as you mentioned,
  • new scores and methods like Noddle
  • A process used by a :bank: or other provider of credit to determine if and how much to lend

Just picking up on the final example. Depending on the sophistication of the lender the ‘process’ might incorporate one or more of the following (non-exhaustive elements):

  1. Information provided by a customer ‘applicant data’
  2. Information already known about the customer (e.g. spending and saving patterns) @sacha covered this
  3. A consolidated bureau score (see above)
  4. ‘raw’ bureau data i.e. comprehensive details about lines of credit, missed payments, credit applications made, summary current account data, rental information…
  5. bureau proxies e.g. affordability and indebtedness measures
  6. A ‘scorecard’ this is basically an exercise in regression techniques to establish which pieces of data (variables) about a customer are the greatest predictors of certain behaviour e.g. repaying borrowing
  7. Policy rules (alluded to by @JamesBell). These are applied to the various pieces of data to limit/control risk. Some examples might include ‘no lending if any credit commitments have been missed in the last 6 months’ or ‘maximum loan of 10x net income’ or ‘lend 20% more if home owner’

So what is the :monzo: position on all of this and what will we be doing with our overdrafts?! Well my posting for now is quite long enough so I’ll see what, if any, reaction there is to what I’ve already said and then I’ll share some more :wink:

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