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What is your credit score and why won't banks tell you it?

Why is credit score important?

While people in the US and UK know their credit score by heart and consciously work hard to raise or maintain it, European banks generally do not disclose their customers’ credit scores to them. This is likely the case because there is no uniform basis for determining a natural person's credit score, and it differs by country and institution.

But for example when submitting a loan application in Estonia, you can only guess which data the lender takes into account when making a loan decision, or how good they consider your credit score.

Your credit score determines whether and under which conditions you may be granted a loan. The better your credit score, the more favorable the loan terms can be, including the interest rate. Persons with a low credit score face more difficulties in getting a loan from a bank, or they do not get it at all. Their loan terms can be much stricter, and interest rates higher than for persons with a healthy credit score.

Therefore, if you want to get a loan from the bank on more favorable terms in the future, it is worth monitoring your credit score in order to maintain a good score or, if necessary, take actions to improve it.

Which data is used for determining your credit score?

For example calculating a person's credit score in Estonia, the data may be collected from the following sources:

  • Estonian Tax and Customs Board – for example, the maximum loan amount that you may be granted depends on your income and already existing loans.
  • Population Register – general data: your age, place of residence, marital status, citizenship etc.
  • Payment Default Register – whether you have previous debts or unpaid obligations.
  • Business Register – whether you are active in business or have been assigned a trade or enterprise ban.
  • Real estate Book – owning real estate is a positive sign to the lender.
  • Official Announcements – your cases of breaking the law and lawsuits.

The most important of these determinants is definitely your previous payment behavior, i.e. whether you have failed to pay your bills and have been reported to the Payment Default Register in recent years. In case of payment defaults, you can be quite sure that your credit score is low, and that banks may not give you a loan.

It should be remembered that various institutions may ask for additional data that they believe necessary in making a loan decision. For example, when applying for a home loan, your bank account statements are also usually requested, which show your precise expenses and income, and help the bank understand how reliable your financial behavior is.

What is a good credit score?

Since there is no single formula in the financial world by which a credit score is calculated, there are also different scales for measuring it.

For example, in the US, a credit score is a three-digit number, which in most cases is between 300 and 850. 850 is a very good score, and it is difficult to go any higher. Americans can see their credit score as soon as they log in to their bank account, and the higher the number, the better their reputation and financial ability are for the bank.

In the UK, a credit score is also a three-digit number from zero to 999. But UK credit agencies assess the credit score in different ranges. Thus, for one agency, a good credit score may start from 531, while for another, it starts from 881.

In Estonia, a natural person's credit score or credit assessment can currently be ordered from Creditinfo, which determines the probability of a person's insolvency (the lower the percentage is, the better the credit score):

  • 0–1.9% – very good
  • 2–5.9% – good
  • 6–14.9% – fair
  • 15–100% – poor

Although the credit score is determined on the basis of different data and on different scales, it still gives financial institutions an indication of someone’s general payment ability. It is also important information for the persons themselves if they, for example, want to apply for a loan or lease in the future.

How can you improve your credit score?

In general, to improve your credit score, you should pay your bills and loan payments on time and not get in trouble with the law. A fixed monthly income and the existence of guarantees such as real estate ownership, a car or potential guarantors are also useful.

If you want to apply for a loan, lease, instalment payment or insurance in the future, it is worth making inquiries to various registers about your data from time to time. Although you cannot calculate your credit score yourself, you can see what information is available about you.

You can then consider what impression these data give to the bank or other financial institutions on your payment ability. If necessary, you can already start making changes so that your indicators are better by the time you apply for a loan.

With Mifundo’s help, finding out your potential credit score is much easier. All you have to do is create your account, fill in your financial profile with the necessary details, and soon you will see an overview of your current credit score.

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    Building the prototype for the Cross-Border lending Project was supported by European Union through European Regional Development Fund and Enterprise Estonia. Grant was in the sum of 35 000 euros and total cost of the project was 52 560 euros. 

    Cross-Border lending powered by Artificial Intelligence is supported by European Union through European Regional Development Fund and Enterprise Estonia (project number 2014-2020.4.02.21-0372). Project period is 12.02.2021 - 31.12.2023. Grant is in the sum of 691 260,05 euros and total cost of the project is 1 069 189 euros.