When applying for a loan, we often speak of “scoring”, sometimes to justify a refusal, sometimes an unfavorable rate. What exactly does this indicator consist of? How do banks calculate it, finally is it possible to optimize it in order to benefit from better loan conditions? Our explanations and advice.
What is scoring?
Scoring is above all an indicator, ie a figure calculated by the banks and which reflects the general situation of the person who made a loan request. A high score implies a situation considered “good” (and therefore without risk for the bank). A weak score implies a situation considered “bad” (and therefore risky for the bank).
It is important to understand that there is no single scoring: each establishment determines the scoring according to its own method. In addition, the calculation of the scoring is an internal process for banks: the result is not communicated either to applicants or to possible intermediaries. Whatever the exact calculation method, it is a complete indicator taking into account the overall situation of the applicant. Scoring therefore takes into account:
- The client’s budget: salary, premiums received, allowance, but also expenses such as rent health insurance (basic), etc.
- The client’s personal situation: age, nationality, type of permit, marital status, number and age of children, place of residence, etc.
- Professional situation: type of job, job security (since when the person has been with the same employer), etc.
- History: for example refusals in the past, bad reimbursements, problems related to a credit card,… the credit history of each client is thus taken into account
What interest for banks?
The calculation of a scoring reflects for the bank the need to have an indicator that is both relevant and succinct in order to decide whether or not to grant a loan. Reducing the whole situation of a client to a single number makes it very easy to know whether the file will be accepted or refused. In addition, the use of such an indicator, generally calculated automatically, makes it possible to study each request objectively.
What influence on a credit request?
Scoring generally represents the risk taken by the lending institution. A high score means a low risk of non-reimbursement. A low score means a high risk of non-repayment (and therefore loss for the bank). Only:
- Scoring too low will result in refusal of the request
- A low score will sometimes make it possible to take out a loan, but often with unfavorable conditions (higher interest rate)
- A high scoring will favor the acceptance of the file and will generally allow to obtain a more attractive rate
Optimization of scoring
It is important, when applying for credit, to think about presenting your situation in the best possible light. To do this, it is important above all not to omit any source of income. An annual bonus, allowances, ancillary income,… these elements are quickly forgotten and can however considerably improve the scoring.
Going through a broker, or a credit agency, often allows better results than by contacting a bank directly. Indeed, the intermediary will be able to check the status of the file and seek to optimize the scoring of his client before the transmission to the bank. Often, an experienced broker or qualified credit agency will then obtain better loan conditions.