We've all heard of credit reports and credit ratings. But a little known practice by some banks could mean they're also secretly ranking how good you are as a customer.
Are you a less than perfect 10, or a wonderful number one?
Confused as to what I'm talking about? Well, a little known grading system means that some of you are being ranked as customers by your bank.
NatWest customers are given a rating from one to 10, while HSBC customers are ranked on a scale from one to 100.
In The Secret Way Banks Keep Tabs On You, Donna Werbner looked at how credit reference agency Experian launched ‘Risk Triggers', enabling banks to find out the dirty on you within 24 hours of it being noted on your credit file.
But what many of you don't know is that some banks have been scoring your credit worthiness for years - by ranking you on a customer scale.
Big Brother is not just watching you, he is rating how good you are too.
What's Your Number?
Back when I was at university I worked part-time at a bank. One thing I remember is when people were declined for a loan or credit card, they found it very difficult to understand why.
Credit and credit reports are extremely complicated to understand. So you'd think that explaining to a customer how a bank also rates you internally would help give the customer a better understanding of how to improve his/her rating.
But although counter staff were more than helpful when I was making my enquiries, I was surprised how reluctant the bigger cheeses were to talk about risk banding. The way one bank responded you'd think I was about to appear on a television programme with my face blurred and a dubbed voice like Gerry Adams in the late-80s.
The person I spoke to at NatWest was particularly defensive.
So, I'm going to talk about that bank first.
At NatWest, every customer is given a risk band from one to ten, (one being the best, and ten the worst) which gives staff an indication of both the products and services they can offer you.
As the name suggests, the band reflects the level of risk you present it. The better the band, the lower the risk. The score is not fixed, and can go up and down periodically, depending on how you run your account.
A good customer is generally someone who has a long-standing relationship with the bank, pays in a regular salary and stays within their overdraft and credit card limit.
An overdraft doesn't neccessarily damage your risk band as long as you stay within your limit. Being a high earner doesn't necessarily make you a better customer. Indeed, someone who regularly exceeds their overdraft limit, or has a history of bounced cheques is more likely to be a risk band nine or ten, regardless of their income.
Five Star Customers
HSBC runs a similar system, where customers are given a ‘behavioural score' which ranges from one to 100, with 100 being the best possible customer.
In addition, rather like a hotel or a restaurant, each customer is also given a ‘star rating' ranging from one to five, which is used to identify possible products and services which may be beneficial to them.
The behavioural score is more closely associated with lending -- swaying decisions concerning overdrafts and loans, whereas the star system is more product-related, assessing the potential for customers to take out future products with the bank.
The two scores are independent of each other, although someone with a low behavioural score is also likely to have a low star scoring. A spokesperson for HSBC said that someone with one star probably performs little or no transactions with the bank, or could potentially have defaulted on their loan or mortgage repayments.
Interestingly, one source at an HSBC call centre told me that if you call up and have a behavioural score which falls below a certain level, you may not be able to get an answer to certain enquiries over the phone, and will be instructed to go to a branch. So in some cases, your score can even influence how you are treated as a customer.
Credit Crunching
These internal scores are independent of your external credit rating formed by companies such as Experian and Equifax, and are used to make decisions solely about the products held with that bank.
However, the two are not mutually exclusive. If you default on your loan or mortgage, your credit report is sure to reflect this. In addition, unlike your credit report, if you don't agree with your score you cannot appeal it, as it is automatically generated.
Not all banks score you in this way, although how you run your account does inevitably have bearing on the products you can apply for.
One source at Alliance and Leicester told me that although decisions on certain services such as overdraft increases do depend on how you run your account, the bank doesn't put a 'score' on its customers as such.
Moving to other banks, don't assume that all banks will treat you the same way. Different banks use different credit models.
So theoretically, you could be a good customer with one bank, yet not so favourable with another.
If you want to find out your score - just ask! Most staff I talked to were very forthcoming with information. Alternatively, you are entitled to the information your bank holds about you on its computer records under the Data Protection Act, known as a ‘subject access request'.
This way, if you are declined, you can leave your branch with something more tangible than a generic leaflet telling you to send off £2 for your credit report. And even if you have no credit problems, if you're nosy like me, it's always interesting to know the stuff Big Brother has on you!
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