How lenders judge you: credit reports and scores

Petra, 29, applies for an €8,000 car loan at Bank X. A friend in the US says, “Check your score first.” Petra lives in Slovenia and cannot find a score anywhere. Does she have none? And how does the bank decide, then?

Lenders must check that you can repay

Before lending, a bank asks one question: will this person repay as agreed? The answer is called your creditworthiness. EU law requires lenders to assess it before granting consumer credit, using reliable information about your income, your spending and your existing debts.

Lenders usually look at three things:

• Your income and costs. Is there enough money left after living costs?
• Your existing debts. How many payments already take part of your income?
• Your track record. Have you paid past loans on time?

The first two come from your documents and statements. The third usually comes from a credit record.

Report, score and bureau: three different things

A credit report is the record of your borrowing history: which loans, cards and overdrafts you have, their limits and balances, and whether you paid on time. A credit score is a number calculated from that record to predict how risky you are. A credit bureau is the company or public body that collects and keeps the records.

Countries differ in two ways:

• Score or no score. In the US, Germany and India, consumers get a score. In Slovenia and France, lenders see the record and decide themselves; there is no consumer score.
• Positive or negative data. A positive register records all loans and on-time payments. A negative-only register records only problems. A clean borrower leaves no trace in a negative-only system.

That answers Petra: in Slovenia, Bank X reads her record in SISBON, a register run by Banka Slovenije, and combines it with her pay slips and statements. Banka Slovenije states that SISBON calculates no score of any kind, so each lender decides how to use the data.

What moves a score (a US example)

The US score from FICO is published in five parts. The weights are FICO’s own:

The ratio of card balances to card limits is called utilisation. Lower is usually better.

Utilisation is mostly a US and UK idea. Three habits work almost everywhere: pay on time, avoid applying for many loans at once, and check your record for errors.

Your rights

In the EU you can see your own data and ask for errors to be corrected. In Slovenia you can view your SISBON data free of charge in the “Moj SISBON” app, using an electronic ID. Under EU data-protection law, a score that a lender leans on heavily can count as an automated decision, so you can ask for a human to review it.