Monzo's Approach To Credit Scoring

same here. They have an error somewhere in my file. When I give correct information it will not verify me so I have to guess what is wrong and give that incorrect information to verify myself :angry:

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A simple our lowest accepted score for this product is near 650, you’re currently ranging between 400-500, here’s a few tips to improve, and here’s our slightly reduced offer of credit - would be a significant improvement over the incumbents right now.

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One of the main confusions that Paul Rippon tried to clarify above is the different meanings of ‘credit score’. The credit score you can buy from a credit reference agency(CRA) is just a general credit diagnostic score to give you an idea of your credit health and nothing like what the lenders use to decide whether to lend to you. You could have a perfect experian score and be rejected for every credit card and loan and mortgage.

When the lender interacts with the CRA- instead of asking them what your score is and offering you credit if it’s over a certain number, they instead grab all the information from the report and run it against their own bespoke criteria which will be very different from what experian used to generate credit scores for their customers.

An example of how CRA score have little to do with getting credit… you may have low borrowing to available credit, never made a late payment, lived at the same address since you were born - which would all give you a very high experian rating, but when the lender runs the information against their criteria they may find your income (which experian has no idea of) is not high enough to borrow that much, or they may have it set up to reject anyone who pays their cards off every month so theyre not going to get any interest. It may even be a case that you’re a good credit profile for them but their lending budget has already been reached for the period so they can’t afford to lend to you at this time (e.g. during credit crunch).

Come to think of it there are a whole bunch of reasons why lenders wouldn’t want you to know why you’re rejected :scream:

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I know this is exactly what you’ve just said above but I think it’s a very important point so I’m going to repeat it:

There is no such thing as a credit score, every credit provider gets your report from Experian/Equifax and then has to apply their own criteria to decide eligibility

This means that it can be simultaneously the case that Monzo don’t re-engineer the credit score concept whilst being more intelligent than other providers in how they judge risk and apply the rules.

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Hi Folks :slight_smile:

I joined Monzo last month as the Head of lending . Look forward to interacting with the community !!

The CRAs ( Credit Bureau like Experian or Callcredit ) collect data and maintain individual credit information. This will include lot of lending related information like number of credit products a customer has , customer’s credit card balances , missed payments etc. The CRA often have bespoke credit-scores which gives an estimate customer’s ‘willingness to repay’ a loan.

Once we offer current accounts, we will be able to customise lending rules and develop internal scores for our customers specifically, using advanced data learning techniques combined with information on the individual’s spending behaviour, incomings and outgoings.

The idea is that we will then combine this insight with Credit bureau information to enhance our understanding of current account behaviours and help us to answer three additional questions before lending to a customer

  • Capacity to pay - Can the customer afford to pay the money back?
  • Sustainable lending - Can the customer pay the money back over the period of the lending agreement ?
  • ‘Fair’ Lending - Is this the ‘right’ product for the customer?

It’s not be something we will be able to do overnight but we’re committed to demystifying the lending process for our customers and this will affect our overall approach to lending.

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I think this basically proves the credit score products that CreditExpert et al are offering, are basically a con - especially at £20 a month to just view the information being held about you.

I think what would be great, and as I suggested earlier, is if some context was provided to the reason why people are declined credit - most banks and lending institutions hide behind lots of obscure reasons, so that they don’t have to tell you specifically why you got rejected for credit, and then specifically what you can do to improve/change the situation.

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indeed, and they also send you on a wild goose chase. Not enough accounts - you open one or two, then you get a neg for having searches and a new account, too many accounts, you close one, that’ll be a neg etc etc. The reality is most lenders want to see steady sensible behavior, that £20 would be much better spent on paying down debts, or spending on a credit card to show activity

Oh and the number must change every month or 2, nobody wants to pay £20 to see a static score, so everything will change score, whether a lender would care or not :slight_smile:

There’s no real need to pay to check your credit score in this day and age.

Clearscore, Noddle and Experian all give you your credit score for free (they hope to make money by recommending loans/credit cards that you are likely to be successful applying for based on your score). Clearscore will also tell you the positive and negative factors influencing your score.

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Do you see how they might not be that well motivated to be particularly honest with you? :wink:

And that they also have motivation for making insignificant events seem more significant. You spent a lot at Christmas, oh score is down, better get another card to lower interest or utilisation, oblivious to fact it’s all paid off already :slight_smile:

There’s no incentive to recommend products you wouldn’t receive as they won’t receive any commission if they weren’t approved and would frustrate their users.

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“Wuh-oh your scores dropped! We recommend this credit card to help you boost your score back up! Not for you? How about this one?”

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Hi Venkat

Interested in your thoughts regarding the consumer credit bureau landscape. Do any of the consumer CRAs, in your opinion, have a competitive advantage?

I gather - from moneysavingexpert and various sites - that certain alt lenders and challenger banks are working with CallCredit in particular. I wonder is their offering more cost effective, or do they have stronger data for various segments such as “sub prime”?

Thanks
Conor

I’d think callcredit being the newest of CRAs probably has least nunber lucrative contracts with big legacy banks, probably make them more hungry.

Hi Conor,

In the United Kingdom, the big three credit reference agencies are Experian, Equifax and Callcredit.

Although most contain similar information they can differentiate how they aggregate data. The selection of bureau could be based on:

  • Richness of data - Does the bureau offer any incremental information over and above the raw data ( examples scores, affordability measures or income estimate)?
  • Services - What services can a financial institute avail from the bureau?
  • Costs - How expensive are the services?
  • Infrastructure - Are the bureau infrastructure easy to integrate with the bank’s system?

Based these factors and depending on whom you ask you may get a different answer about which bureau has a competitive advantage :wink:

Venkat

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You mention scores, I presume these are more refined and complex than callcredit display via noddle, and it won’t just be my score (from noddle) is above x so I pass, else fail ?

Yes, Bureaus can have 700 variables and score in of the one key variable. Many organisations/banks create their own score. And Banks will use a combination of the Bureau score, own scores and available variables to define their criteria.

We are currently writing a blog on Credit Bureau hopefully, I can answer or clarify more via that blog.

Thanks

I don’t believe what credit reference agencies show us as the public as I use Noddle, Clearscore and Experian (used to pay)

My scores are (example only)

Noddle - 150
Clearscore - 400
Experian - 800

All 3 are massively different scores yet all hold near enough the same data but although I don’t really believe them I tend to worry about applying for any credit based on the above and would think Experian shows my score in a better light.

How would Monzo look at my application based on the above if I turned around and said Experian had better score?

If the bureaus have basically the same data on your report then they should give near identical data to Monzo regardless of your “score”. As said previously, organisations tend to use the report data to create their own score, not the bureaus’ public score.

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