What's up you guys, sasha here now, over the years, i've worked with over half of all of uk's credit card companies, either working at them or working with them as a consultant other than that i've also worked with dozens of different loan providers. I worked with lenders across the uk in europe, in the middle east and asia and in the us and over my career, i've managed to build a huge number of different products. I've launched and built new ones. I've reinvented existing ones.

I've built scorecards, i've built credit policies. I've done all those things and what i wanted to do in this video is to share with you exactly how the process works in terms of deciding who gets approved and who doesn't get approved or credit products exactly what the credit card loan or any other lending Company is looking for the moment you hit that apply button, i'm going to take you through the steps in the process and exactly what the company does in each of those steps. Let's dive right in the first step in pretty much every single credit application, no matter what you're applying for are the credit policy rules and there are two types of credit policy rules that apply. The first is the pre-bureau, and the second is the post bureau set of credit policy rules.

The pre-bureau policy rules do exactly what they sound like. They are applied before the company goes and searches for your data with the various credit reference agencies. This is to weed out some applications where things just don't make sense, either somebody who's applied who's under 18 or they live outside the uk or in one of the very unique jurisdictions that are within the uk, but outside the scope of what most credit card companies Will approve like some of the islands or some other random things like, for example, for some reason he managed to submit the application without filling in some of the fields. Let's say your browser had javascript disabled or something else like that.

The pre policy bureau rules basically just kick out people who shouldn't have been able to submit the form in the first place. The next set of policy rules are basically just simple: yes, no rules which the company set, where they are going to go and get your bureau data and then based on the information you've supplied in your application form. Together with this bureau, data go make a decision as to whether they should take you to the following steps in the journey, and this is very, very simple. It is just a yes no answer.

It is, for example, how are you currently delinquent? How are you currently behind on any of your payments with any other credit providers? Yes, no in most cases, if the answer is yes, you're going to be declined at the stage, your application will go no further. In some cases these are going to be a bit more complicated like, for example, one step more complicated could be. Have you had a charge off like a default? Have you stopped paying and reneged on your mortgage payments, for example in the last 36 months, and if the answer to that question is yes, then a lot of credit card providers will immediately say: okay, i'm not interested in dealing with this customer, because i don't want To deal with customers who stopped paying their debt and went to financial difficulty within the last three years, in some cases it would be different, i'm only using very rough examples. These are not in any way representative of any specific lender.

I am not telling you the exact credit policy for any particular lender here, i'm talking about the principles and how these different credit card or loan or other types of lending companies go and use these steps in making their decisions. The next step after the credit policy rules are applied, is what's known as the credit score card. Now, a lot of people confuse the two. Some people call one the other and vice versa, but the two are very, very different.

The credit policy rules are just a simple set of rules. It's like a little flowchart and each time you go and pass one. You flow down to the next question and hopefully pass all them in order for you to be able to go to the credit policy. In some cases, people go and say no to one of the questions or fail one of the questions or whatever, and then they never get further with a credit policy, it isn't quite as clear-cut as that.

So what happens with the credit score card? Is? There? Is a big model and this big model takes a large number of variables. It depends on the card company or the loan company how many different variables they use, but they use stuff from your application form so stuff that you've put in in terms of the various different fields. They use lots and lots of data from the credit reference agency. Sometimes they use multiple reference agencies.

In fact, there are three credit reference agencies in uk there is experian, there is equifax and there is transunion used to be known as core credit and in the past most people probably would use one today. Is it becoming more and more common for people to use two and in some cases or three in order to make their decisions? So what that means is they'll, go to the reference agency and they'll say: hey i've got this. Customer here is their name address and date of birth. Can you go and give me the credit file for that customer? That company will then give them a credit file, and i can have something to the tune of 1 000 different variables about you.

They'll know exactly how many different credit accounts you've had today in the past. You know: there's lots of different time windows in which this data is provided. Everything about your payment history, your balances, all of that stuff gets given to them. So what then happens is they? Then go and build a model using all of those data and that model will determine what they think the probability of default.

For you, as a customer is most companies use, what's known as logistic regression model, i'm not going to go into the details of exactly why exactly how it works, but the net outcome is basically, they will pick a number of variables. It will typically be between five and maybe as much as 20, depending on the specific scorecard used and what they'll then do is they'll assign points for different kinds of variables, depending on the way that they have classified them. So what i mean by that in very very roughly speaking - i am simplifying somewhat in this - is let's say they go and use the consumer indebtedness index. This is an experian variable, which is very, very popular with any lending company that uses experian as part of this model, and what they'll do is they'll say well, based on the value of this variable, we're going to assign a number of points and if your index, In this index is low, this means you're, not very indebted.

There may be four values of between you know, 0 and 20. I'm just making these numbers up here, they're not really relevant for any particular scorecard and don't take anything i'm saying here as specifics. But let's say your cio is between not 20. Maybe that'll give you a plus 10 on your points and maybe if your cri is between say 20 and 80, for example, just again making these up, then maybe you're gon na get a zero.

And maybe, if your consumer, that in this index is 80 plus, then maybe you're going to get a negative 50 points, for example. So what they'll then do is they'll say: hey, let's start with a base score for every single credit card company. This is very, very different. Everyone has a completely different way of doing it.

The credit scores that you see experian, equifax and transfer union trying to sell you trying to advertise to you are completely meaningless. Literally, nobody uses them, neither in the credit policy. Neither in these models that i'm talking about they're just there for you provided by the credit reference agency, the lenders actually don't use them, they build their own. So what they do is they say.

Let's say i start with a score of 500. What i'll then do is take my 12 variables that are decided are going to be my model and for each variable i'll have this classification, which says, if that variable is between this and this, then i get plus seven and if it's between these other ones, then It's minus five and so on and what they then do. Is they take the initial score? Let's say it's 500 add and take away the points as per the model and then you'll have your final score at the end. Now it does get a bit more complicated because in cases where the variables correlate or affect one another, you have some mathematical ways of overcoming this effect by having cross variables, i'm not going to get into that.

But in the end you get a score and let's say you score a 675., so the credit card company or the loan company will do now is they'll, say: let's say our acceptance criteria is a minimum score of 630 to be accepted. So great news you have been accepted because your score is higher than the past level that they have set, but in lots of cases, there'll be gradients within the acceptance criteria. Where you get different terms and you get different types of products available to you, depending on how good your score is, so it could be that they'll say well between the score of 630 and 700, you only qualify for a very low credit limit. So in the case of a credit card they might say well we'll give you a credit card, but your credit limit is only going to be 250 pounds or 500 pounds or something like that in the case of a loan.

That might say we're only going to be able to approve the loan of up to say 2 000 pounds, because your credit score is not that high, then they'll say well for scores above 700. Maybe there'll be another one or two steps, but there'll be some kind of step-wise kind of risk stratification, if you like, where, depending on where you fall within it, they'll then assign the type of credit or the size of credit. The amount of credit that you're going to be able to get based on that score. Now, some credit companies have begun doing this process in a different way.

There's slightly different ways of doing this modeling slightly different versions of logistic regression that are becoming more popular and some people are using other methods like building trees with nodes. It doesn't really matter. The n outcome is, roughly speaking, the same you get assigned to a group of people who exhibit characteristics similar to you and they'll, decide whether or not you get accepted and exactly how much they're able to lend to you based on that outcome. So the next step in the journey is the fraud assessment and the fraud assessment is quite complex and this one is done slightly differently by different people.

There's lots of different systems in play that i use to determine. If you might be, you know not. Actually you applying for credit, or maybe you have committed first party fraud on products in the past, like let's say, you've taken out credit with no intention to repaying it or tried to lie to companies in the past or any other number of things. There's loads of different criteria that are assessed for fraud by these different companies and lots of different providers of data.

This hunter hunter is a big national fraud database. There's sierra there's detect, there's authenticate. There is cyphus, which is another big database where, because every customer will have records in the ciphers of any kind of specific occurrences and events that took place within their credit history, in some cases, the customers actually submit their own flags to cyphus. And if there is a flag against an account, it has to be actually reviewed by the system in order for the customer to be processed.

Now here is a really interesting fact. A lot of these fraud systems are not as automated as you might think. For example, cyphus that i mentioned is a very manual system in some cases, so where a customer has manually actually entered data into the system or another bank has typed something in because they've noticed some kind of pattern or whatever it is. They want to update every other user of the system of a potential fraud.

What then, has to happen with any new lender if they go and check this marker is they have to go and read this information before they issue credit, and the problem is a lot of these new cool, fintechs and lending companies that don't have call centers. Don't have operational teams, don't have any staff members just very minimal kind of online website based lenders, they just don't have the capacity to be able to go and process these, but legally they still have to comply with regulation, which says you can't go and lend to People who are potential fraudsters, and so on. So what this means is these types of companies in lots of cases will actually decline. Customers who have any flags, even if those flags are not absolute, even if it's just a maybe flag or we're, not quite sure it could be a fraud flag against a person's name.

A lot of these companies just don't have the manpower to actually go and read them and try to assess them, and then try to you know confirm with the customer or do something else, and in this case that means that, with some of these newer lenders, not The big banks, not the people with big operational teams, you're likely to get declined at the stage, if there's anything just slightly odd in any of these databases with your particular profile. Now the two other things that happen in the stage are you get checked against a number of different government and vip lists for people who are on various sanctions list internationally nationally within countries that the uk has is with there's those particular checks that take place and Also, there's a mail checks that happen now: aml checks are anti-money laundering and essentially, what they're trying to determine is: are you in the process of laundering some money somewhere else by filtering the money through the system, so you go and get some dirty money somewhere else? Let's say you go and get a loan, you go and buy something with this loan money and then you repay the loan with the dirty money. Essentially, you've laundered the money by putting it through this product and when somebody goes and finds out. How did you manage to afford this you'll say? Well, i used this loan rather than the proceeds of crime, so people need to go and check whether you are likely to be.

You know a candidate for somebody who might be doing anti-money laundering there's several different other systems, some of the ones i mentioned as well - that people use to go and run these checks to try to make their assessment of whether this is a likelihood, but also there's Another process that the companies go through called kyc now kyc is know your customer, and it is a legally mandated process that every lending company in uk has to go through and what this means is. They have to go and assure themselves that they are confident that the person is applying is definitely that person that that person is not being impersonated, that they've understood that that very person is actually filling in the form right now. That's why some of the newer lenders, and actually just people who are not even lending like bank account providers, are doing a lot more on the sort of uploading your government id taking a picture with your id or doing a video where you turn your head and You say stuff if you've seen any of those kind of things recently the reason they're doing that is to satisfy this kyc requirement that they are really understanding the customer. The second half of kyc is the credit company needs to really understand your circumstances, so different people do this in different ways.

Some build much more complex back-end systems which use data that they've got about you from the credit reference agencies and any other providers of information that they go and partner with, and they try to make that assessment. Without asking you lots of questions upfront. But if you've applied for credit - and they begin to ask you all these different questions about you know like your lifestyle or behavior or like things that you do, the reason that they're asking those questions is to satisfy those kyc criteria points now next on the list Is something called affordability and affordability is a relatively new thing that the fca, which is the regulator for uk credit companies, has put in place and what affordability has to do is essentially the credit card company. The loan company has to ensure that the credit they're lending out is not only low risk.

So it's not only low enough on the likelihood of you not making the payment at some point in the future, but that they can prove and they can satisfy the regulator that the customer they're lending the money to definitely can make the minimum repayments and definitely will Be able to make those minimum repayments in the short term, so if you ever see these questions somewhere towards the back end of the application form like how much do you pay per month for your childcare? How much do you pay for your petrol? How much do you pay for food? The reason they're asking those questions is so that they can do the affordability check. Now there is a legal requirement that the affordability check is completely separate and runs in a completely separate way, completely independent of the credit risk assessment, which is the likelihood that you're gon na be able to make the payments, and so the reason the companies ask these Questions is try to make that decision. Some credit companies will not ask those questions or only ask a very small number of questions and the reason they don't do, that is they go and build more sophisticated systems. In the back end.

They try to predict or mimic the answers to those questions because they think that they actually will probably get a more accurate number, not by asking you and some people, maybe won't be as truthful as they should be. When they're answering that type of question. What they'll do is they'll go and look at your say, behavior on your different credit products over time and make an assessment of how much disposable income do you have based on all of this data based information they get about your predicted salary and your predicted indebtedness. They can probably make an estimation of how much maybe you're paying for rent.

Maybe some of your data from the credit reference agencies will indicate what the size of your mortgage is. There's lots of different ways without actually asking you that they can go and try to decide some of these things indirectly, which some lenders go ahead and do because it makes the application process that much more straightforward. Now the last stage in the process is something again that some of the older school banks and some of the older school lenders will do quite a lot of. But none of the newer people do because it is an operationally very heavy process, and that is manual.

Cues, so what are these manual keys and how do they happen now? I mentioned previously that customers generally get accepted or rejected during the credit scorecard process and during the fraud assessment process. But some companies decide that there is a group of people in the middle who are neither a definite yes, neither a definite. No maybe they have a particular question. So, for example, maybe during the kyc process, they're saying well we're not 100 sure that this is definitely the customer filling in application, but we definitely don't know that they are not the person either.

So what we might do in this case is we'll request some additional documentation. So then i go to you and say: hey: can you go and take a photo of your driver's license and this won't apply to every single application, but maybe only to you based on how likely it is that they think that you might be not the person That is filling in the application. Maybe in some cases they'll go and actually do this in a much more old-school way. They'll actually send you a letter or they'll tell you that you need to go to the post office and send them a photocopy or some other weird and wonderful thing.

Like that, the reason they're doing these processes is to try to pass you for the credit product. If you are somewhere in that middle on either of the credit assessment or the fraud assessment, so there will be a proportion of people. In most cases, it won't be very high, probably usually, between five and say, fifteen percent of the total number of applicants with the companies that do do manual cuso actually fall into one of these queues and, typically speaking, there's only going to be a very small number Of things that they're going to be assessing they're not going to be checking any of your credit products at the stage, they already have all that information they're not going to try to verify those things, but in some cases, if they haven't had a strong enough match At the bureau, so if they can't find your data at the bureau, they might go and ask you additional questions. Like you know, have you had any previous addresses? Have you missed typed or misformatted your address? Can you provide us some additional information that will allow us to match you to a particular bureau file? In some cases they have a bureau file that has come up, but the likelihood of the match is not high enough.

So, for example, they might have a bureau file which they think is you, but the likelihood is only let's say a 60 or 80 percent and they're not very comfortable with that, because they could be using data, which is not actually yours, so they'll ask for a Bit of additional information at that stage, as well generally speaking manual cues, are processed by actual people, so actual people will go and look stuff up in additional databases. In some cases, sometimes they'll go and run your mobile phone through some systems, which will try to identify. Are you likely to be a fraudster or not, and there's going to be other checks they can do manually by sending you letters receiving things back from you and manually processing them? That's what manual cues? Do they basically take people who maybe would have been rejected if that manual queue wasn't there, but then they can turn them into an accept instead, so at the end of it all, if you pass all of these stages, you're going to get a nice big, accept Screen which will say, congratulations, you have been accepted for this credit card for this loan and, if you've done really well, if you scored very highly on the scorecard, you will get the amount that you wanted for a loan or you get a very high credit limit With a credit card in cases where maybe you passed, but you didn't score as highly you're, still probably going to get the same. Congratulations message: if you pass everything, but what they'll say is either hey your credit limit's going to be a bit lower to start with, and they won't tell you why.

But the reason is because your score wasn't as high as it should be. On the scorecard or they'll tell you well, you know you can't get the amount of loan that you requested, but based on our affordability assessment and our credit assessment, you will be able to go and qualify for a lower amount. Instead, would you be interested in that now really important point is when they do the affordability assessment i mentioned earlier that affordability assessment doesn't just only have a yes, no answer in some cases it might be, you can get the lending required, but actually the amount of Lending is lower than what the credit policy would have offered you. If that affordability check, wasn't there in place, so in some cases you'll get less than what you asked for, and the reason is because that most cases, probably that affordability rule went and reduced the amount that you actually can afford.

According to them in terms of your monthly payments, and that's why sometimes you'll get that counter offer. Instead, i hope you guys found this really useful. If you have, please make sure you go and smash that like button for the youtube algorithm, it is so so important for a young new channel like me to be able to reach more people with this useful information. If you enjoy your videos about personal finance, about personal finance products, about making more of the money that you have and making more financial services products and understanding them better, make sure you go and subscribe to this channel.

That is exactly what i talk about with every single video here. Make sure you hit that bell, so you don't miss those videos whenever they come out. Thank you. So much for watching and i'll see you guys later.

You.