In years past, getting approved for a loan only depended on a few factors. Lenders would assess whether the potential loan was profitable for them by vetting a potential lender’s likelihood of making repayments by checking his or her credit report and income. Over the past few years however, this verification process, called a loan affordability check, has grown and evolved into something more complex and thorough.
Today, lenders not only need to verify your income before granting loans, they also need to see what your expenses are. This helps lenders see how likely you would be to pay off a loan based on how much outgoing payments you make on a monthly basis when compared to your income. In calculating these outgoings, lenders will usually look into the following:
- Recurring bills (such as rent, utilities, phone bills, etc.)
- Education fees
- Any other unpaid loans you’ve taken out
- Credit card debt
This list is by no means exhaustive, but as you can see, loan affordability checks are much more thorough than just looking at a credit report or credit score alone. So what happens if you get denied a loan you’ve applied for? How can you increase your chances of securing loans moving forward? We’re glad you asked. We’ve outlined some simple steps you can take today to better your chances of securing the best loans available for you:
Look over your credit history
As you may know, the history on your credit report is an integral part of how your credit score is calculated. Your credit score is one of the main values that lenders will use when assessing your risk, and by looking over your credit history you can learn what factors are holding you back from having a higher score and take actions to improve your score. In turn, your chances of receiving your desired loan will increase as you take those actions.
Try using your bank
If you have been with the same bank for years, try getting your loan through them. Whether you have a current account, savings accounts, or both, your bank will know you better than most financial entities. They can see your wages and your account activity, which can improve your chances of you receiving a loan.
Know the type of loan you need to be approved for
You should have a suitable reason for needing a loan. For example, taking out a loan for a holiday may come off as a red flag to many lenders.
You should also know what type of loan you need. For example, there are specific lenders that you can work with to finance a vehicle.
If you don’t want lenders to judge you based on your credit history alone, you can present references to lenders that show you have paid certain bills on time.
For example, you can request a reference from your landlord showing that you have been a good tenant and paid your rent on time. This also goes for mobile phone contracts, car payments, electric, and the other bills you pay on a regular basis.
Know your Affordability
Remember that you should only apply for loans you think lenders will approve. When you apply for the same type of loan across multiple lenders the searches and inquiries will show on your credit report. So, if you want to keep from lowering your credit score you should do your homework.
By using a loan affordability calculator, you can calculate what loans lenders are likely to approve you for before inquiring about them.
We have teamed up with Account Score and their sister company Consent Online to help solve this issue. Our goal with this partnership is to bring what currently happens with lenders today to the consumer so that you have the ability to understand exactly how lenders view you when trying to get approved. These companies facilitate the usual Loan Affordability consumer interaction electronically by allowing the consumer to authorise the transfer of this information from their bank to the lender directly.
So how does it work?
After you sign up to ScoresMatter you can begin your onboarding experience in the loan affordability feature. There, we will guide you through verifying the criteria mentioned above. It’s as simple as verifying your information and connecting to your bank. From there you can see what loans you can afford which we present in easy to read scales and scores.
Sign up with ScoresMatter to get access to our Loan Affordability Tool, and see what you can afford today!