Hi @ccoouuss
A few of you have been asking how your credit score affects the rate we offer you for your overdraft (both here and on reddit).
I replied to this question with the details on how we decide your overdraft rate on reddit yesterday, but going to share it on the forum as well, as a lot of people are interested! Here’s what I posted on Reddit:
Hi all,
Ofelia from Monzo here, I wanted to shed some light into how we decide to give you a certain overdraft rate and limit, or why we’ve decided not to offer you an overdraft. I realise that there’s some confusion over whether we only use the Credit Karma score to make the decision, so hopefully this helps!
Here’s how we make the decision today.
There are 2 factors we take into account: your credit report and how much we think you can comfortably afford to borrow.
When we first offer you an overdraft, we look at your credit score and report to decide if we’re happy to lend to you, and at what rate.
At the moment we get your credit score and report directly from TransUnion. TransUnion also power Credit Karma (which shows the score most of you will be familiar with). The two scores tend to be highly correlated, but they’re not exactly the same and there are some cases where they can be different – for the vast majority of people though these two will be very similar.
To add to that, TransUnion have 2 different types of scores: ‘Acquisition score’ and ‘Account Management score’, and we use one or the other depending on whether you’ve had a credit search in the past 3 months. These two scores are also slightly different.
So, when you apply for an overdraft at Monzo we look at the TransUnion score that’s relevant for you at that moment in time, and decide whether we’re happy to lend to you and what your rate should be. We’ll also take into account issues like County Court Judgments or insolvencies on your report. This is how we give you a rate of 19%, 29% or 39% EAR, or decide we’re not comfortable offering you an overdraft.
Your “affordability” determines how much we think we can lend you, so you can comfortably afford to pay it back.
We need to make sure that we only lend people an amount of money that they can safely pay back. At the moment we’re being very conservative with our approach.
First, we ask you some questions about your employment status and your income. We also contact TransUnion to verify your income. We then use that information to decide if we can lend to you, and how much.
Sometimes we don’t have enough information, or the income we see through TransUnion varies a lot, and in these cases we won’t be able to lend to you. This might not mean that you can’t afford to borrow from us, but because we don’t have enough information we can’t make an informed decision.
There are some other edge cases, where we can validate your income but we might still decide not to lend to you. For example if you have a shared mortgage where we don’t know what the split of the payments is.
So if you have a TransUnion score we’re comfortable lending to, and we think you can comfortably afford the repayments, then we can offer you a Monzo overdraft. We’re always working to make our decisions smarter, and we have a whole squad dedicated to helping us lend to more people, responsibly.
We won’t take away or change an overdraft you’re using if your score changes.
If you already have an overdraft with us and your credit score changes, we won’t take the overdraft away, and we won’t reduce your limit. But if you reduce your overdraft limit or turn your overdraft off, then you may not be able to increase your limit again if you’re not eligible any more.
Hopefully that helps to explain more behind our decision making!