Experian has announced a major update to how it calculates credit scores which it says better reflects current consumer behaviour.
Under the new system, scores will now be given out of 1,250 instead of 999, and many consumers may see a drop, even if their financial behaviour hasn’t changed.
The move is intended to offer a more ‘realistic picture’ of credit risk, but may add confusion for anyone preparing to apply for a mortgage.
Experian says the score "better reflects how lenders assess credit applications today", with short-term borrowing, new accounts, or high credit utilisation carrying more weight.
Experian said: "Banks and lenders are now looking at new data when making decisions, such as rent, overdrafts, and mortgage overpayments. This data is now reflected in the new Experian Credit Score, giving you the best view of how lenders are assessing the information on your credit report."
James Caldwell, director at Clifton Private Finance, says the change could derail some buyers’ plans.
According to James, “people will most likely see their credit score change. However, this doesn’t mean the underlying data on their credit report has changed.
“Buyers need to remember that lenders use the data, not the score, to decide whether to offer a mortgage.
“Yes, this change will take many by surprise; for some, their score could fall overnight, not because they’ve missed a payment, but simply because Experian has adjusted the way it assesses borrowing risk.
“This could make people anxious at exactly the wrong time, especially if they’re in the middle of a mortgage application. Additionally, this change comes weeks before the Autumn Budget, which already has prospective buyers and homeowners worried about potential upcoming changes.
“The danger here is that buyers may start second-guessing themselves, which can lead to unnecessary changes to their credit profile or even panicked multiple applications, which can actually make things worse.”
James also reminds mortgage applicants that the score you see on credit platforms isn’t the same one lender's use.
“Many lenders calculate their own credit scores in-house, meaning you could have several scores depending on the source.
“Whether you use Experian or Equifax, the score is just a simplified snapshot. What really matters is the underlying data, are your payments up to date, is your debt manageable, and do you show consistent financial behaviour?”
