When it comes to borrowing money, the first thing that raises your anxiety is your credit score. This is what you think about after immediately you decide to take out a loan. However, it is obvious to worry about it because whether you get the loan approved depends in a large part on your credit score. Whether you are applying for short term or long term loans with direct lenders, you will have your credit report checked.
It is essential for a lender to see your credit score to check if you have been consistent with your financial obligation so far. No lender would like to lend money to a person who is unable to pay back and a large part – about 35% – of the credit score accounts for the payment history. A good credit score, according to Experian, should be between 881 and 960. Your credit report is awesome if it is
over 960 as it makes your score excellent. When a loan application is turned down, you often put the blame on credit score. The internet is flooding with numerous sites emphasising only the one reason – poor credit rating – for having an application turned down and recommending some useful suggestions to improve your score. If you see the other side of the coin, you will find there are, though not many, people who get their loan request rejected despite an amazing credit score. This often throws people off balance. Since not
all lenders give an explanation for the rejection of the loan application, doubts often remain unresolved. This blog will reveal what other causes can be responsible for turning down your application.
A lender will look over your income statement to check your affordability. The lender will not disburse the money you put in the application without taking into account your repaying capacity. For instance, it is likely that you can afford to repay only £500 and you are borrowing £1,000. A lender will check if you are able to repay the loan after meeting all of your regular expenses. If they suspect that you can hardly manage your recurring expenses or you just can afford half of what you have mentioned in your application, they will immediately cast it aside without giving you any reasons. Every lender follows income criteria. Make sure that you meet the criteria to avoid rejection.
If you have a full-time job, you should be at least a year old in that company. However, a few direct lenders are out there that can approve your application if you are six-months-old in that job. To increase the approval chances, make sure that you stick to a company for a longer period. Frequent switching between jobs will make it harder and harder. Likewise, if you are self-employed, make sure that your business is at least one-year-old. However, lenders will prefer you to have at least two years of experience in case you are applying for a secured loan or a long-term business loan. make sure that you have a plan to tell your lender how you will grow down the line.
A guarantor’s creditworthiness
Even though you have not applied for a loan with a guarantor or do not want to intend to do so, the lender may ask you to arrange a guarantor in case your application does not seem satisfactory. You will have to arrange a guarantor with a good credit history. It can be your family or friends. The lender will look over the credit report and repaying capacity of the guarantor. This is because the lender holds the right to call upon them in case all means of getting money back from you are exhausted. If the lender finds that the guarantor’s credit report is not up to the mark or their financial condition is not satisfactory, they will turn down your application.
It is likely that you have a couple of loans like a personal loan or credit card bills and you have been managing their repayments smartly. You have come up with an emergency and you find that you are running out of money because your invoices are still unpaid. You can decide to take out a cash loan to fill the gap.
You will likely think that the lender will sign off on because your credit rating is good and the amount you are borrowing is not much. This is where you slip up. Your lender will not just consider your credit rating to decide if they should approve the loan or not. They will also scrutinise your debt-to- income ratio. If debt seems to be higher than 30% of your income – although you are able to manage
them efficiently – the lender will not approve.
It is paramount to have a good credit score to get your loan approved, but there are several other factors that count too. Your lender will not approve your loan despite a good credit rating if other factors like work experience, monthly income and debt-to-income ratio are not satisfactory.