On the 8th of November 2015, arguably the most well-known credit reference agency in the UK, Experian, changed the way they calculate credit scores.
As a result, users of the Experian service may have seen their credit scores change overnight, without really knowing why this has happened.
Some will have seen a jump in their credit score, while others may have seen their credit score drop.
So, what exactly did Experian change, and how might this affect your chances of getting credit going forward?
Let’s look at the changes in more detail.
What did Experian change?
What exactly did Experian change in the way that they calculate credit scores? Top UK personal finance site Money Saving Expert asked Experian this very question and the answers they were given are as follows:
If you already have debts, this will be less of an issue
When calculating your credit score, lenders often look at how much debt you are currently in. Experian has said that it appears that lenders are now not being as negative towards borrowers just because they may already have large debts.
So, if you are currently in a lot of debt but don’t have adverse credit, then you may well have seen your Experian credit score rise.
If you’re in more debt than you were a year ago
In the past, lenders may have taken the fact that you owe more money to creditors now than you did at this time a year ago to be a bit of a red flag.
While this may still impact your credit score, it seems that this will now not impact your Experian credit score as negatively, as long as you are managing your current debts well.
Recent and historic adverse credit
It also seems that Experian now takes any recent or historic bad credit history a lot more seriously. So, if you saw a big drop in your credit score due to the Experian changes, this may well be the reason why.
Experian are now viewing any missed or late payments, bankruptcies, IVAs, County Court Judgements (CCJs), or defaults more negatively in their credit scoring, in order to more accurately reflect – it says – the current behaviour of lenders.
How will the changes affect you?
So you may be wondering, how will these changes affect me? Will I still be able to get credit, or will I now find it more difficult?
The important thing to remember here is that when you apply to take out a loan or credit card, each lender will credit score you in their own unique way.
They do not use Experian’s credit score in any way to help them to make their decision. Experian’s credit score is an independent assessment of your financial history and circumstances, which attempts to give an overall picture of your likelihood of being accepted for credit with different lenders.
With this in mind then, these changes shouldn’t really affect you too much at all. If you would have been accepted for credit with a specific lender before the changes, then it is likely that you will still be accepted today.
What it should do is give potential borrowers a better idea of what lenders are looking at these days. It may also help them to understand why they may have been refused credit a couple of months ago, even though their Experian credit score was viewed as being ‘good’.