A puzzled ClearScore user asked:
My credit score has gone up but my affordability has gone down…
not sure why sometimes I think these credit score companies just do what they want lol.
Her credit score had increased by 57 to 573, but at the same time her affordability score had fallen by 15 to 64.
These weren’t tiny changes… ClearScore affordability scores are out of 100, so a 15 point drop is large. It’s equivalent to a 150 point drop in a credit score that is out of 1000.
Both the numbers come from the same Credit Reference Agency, Equifax, and are on the same ClearScore report.
What is going on here?
Credit scores look at your credit history & balances
Your credit score is an assessment of how likely you are to default on any new credit. But it doesn’t actually look at your current finances, just how you have handled credit in the past and what credit you have got at the moment.
It can seem mysterious what makes your score change:
- missed payments, defaults, CCJs and insolvency (IVAs, bankruptcy etc) all harm your credit score;
- using a high proportion of your credit card limit and using your overdraft also harms your score;
- paying credit on time and having low credit card balances helps your score.
- my article How much will my credit score change if … ? gives some numbers in simple situations.
Although it’s common to talk about “your credit score” you actually have three different scores, one from each of the three CRAs, Experian, Equifax and TransUnion.
Many lenders only report data to one or two CRAs so each of the three CRAs will see different information about you and calculate a different number.
Affordability scoring looks at your bank account
ClearScore introduced affordability scores in addition to credit scores last year. To get this score, you have to let ClearScore access the last 5 months of your bank account data using Open Banking.
The aim is to predict how much spare money you have available for paying any new credit. ClearScore says:
So while your credit score looks at the past, your Affordability Score helps paint a picture of the future.
They haven’t explained much about how this score is calculated. It seems that some of the things it looks for include:
- whether you are making payments to debt collectors;
- whether you spend much on gambling;
- how much cash you withdraw;
- how much money you have left at the end of the month.
Inflation will hurt affordability
Inflation has been rising fast in 2022. March’s CPI was 7% – the highest it has been for 30 years. At the start of 2021, it was under 1%.
The prices that are going up include many essential bills and living costs. So most people’s bank accounts will be looking less healthy now than they were a few months ago.
That is what an affordability score is measuring. If you now have less money left at the end of the month, your affordability score is going to drop.
And that is almost certainly the explanation for why you can see your credit score increase nicely at the same time as a large drop in your affordability score.
It may be harder and more expensive to get credit
Lenders may not use the ClearScore affordability number directly, but they do assess whether you can afford new credit you are applying for. You may find that you are rejected for cheap credit or that you are offered a higher interest rate than you saw advertised.
Last week in Santander starts frantic rush to scale back mortgages as banks get tough on cost of living crisis it was reported that mortgage lenders are introducing tougher affordability assessments.
This looks set to continue. April has brought higher energy, broadband, mobile, council tax and many other bills. These haven’t yet started to show up in your bank statements, so the ClearScore affordability score for many people may continue to fall.
(thanks to Instagram user Savewithme.2022 for permission to use the picture)