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How do lenders decide to give you a loan?

Before you apply for a loan, it's important to consider how much you need, and which lender to approach. On top of this, factors such as how much you can afford in repayments will also affect your decision.

Lenders take a good look at your credit rating and history to decide whether you're suitable for a loan. Find out what goes into their examinations and how you stand the best chance of getting a loan.

Once a lender receives your application, they’ll assess your financial status before deciding whether or not to offer you a loan. You can improve your chances of approval by understanding the processes lenders go through to work out if an applicant is likely to be a reliable borrower.

A key deciding factor for lenders is your credit score and history. Every lender will approach at least one credit reference agency (CRA) to view an applicant’s credit report. The better it is, the more likely your application will be accepted. A positive credit report could also improve the rates and terms you’re offered. Knowing what lenders see and use to make a decision can help get you in the best place before applying for a loan.

Do lenders see your credit report?

Yes, a lender accesses your credit report through one of the major CRAs, in order to give you a credit score. Their score is based on the contents of your credit report, which includes your personal information and borrowing history.

If you wish to get an idea of what your credit score might be, you can ask one of the three CRAs to provide their own estimation based on your credit report. The scales are different between each of them: TransUnion (0 to 710), Equifax (0 to 700) and Experian (0 to 999).

However, a credit score isn’t the only factor used by a lender to make a decision. It forms part of a wider examination of your whole credit report. This is why it’s important to view your report before applying, to correct any errors and add notes if certain details need further explanation, as lenders may examine them in greater detail.

What do lenders see on your credit report?

Lenders can see a six-year credit history on your report, which includes details on:

All of these factors could influence their decision on whether to lend you money or not.

One of the most important aspects lenders will look at is the information regarding your previous and current credit accounts. Bank and credit card accounts are all listed on your credit report, along with outstanding loan agreements or utility company debts. Details of payments being made on time appear, along with any missed or late payments, which stay on your report for at least six years.

Other information visible to lenders includes:

Public record information such as County Court Judgements (CCJs), house repossessions, bankruptcies and individual voluntary arrangements also stays on your report for at least six years.

What credit report do lenders use?

Lenders pay one (or more) of the UK’s three different credit reference agencies (CRAs) to gain access to your credit report. As a result, there are three separate versions. They will overlap a lot, but some information may differ depending on where they get their data.

The three major CRAs in the UK are:

Lenders will use at least one of these CRAs to check your credit report, with some cross-referencing between two or all three. You have a legal right to view your credit report from each CRA, to check for errors and make sure it’s in good condition. Each can supply you with a credit score based on their assessment of your report.

How does my credit history affect a loan application?

The better shape your credit history is in, the more likely you are to be accepted for a loan. This is because lenders will view you as a reliable borrower if you have a strong history of making previous repayments on time and in full. You may also qualify for better rates and terms with a good credit history.

Any late or missed payments mean you are less likely to see your application accepted. Other issues such as CCJs, maxing out available credit or having financial links to someone with a bad credit rating may also affect your application chances. In many cases you may still be accepted, but are likely to be offered higher interest rates and less favourable terms.

How to improve your credit score

You can’t change what lenders see, but there are various ways to improve your credit score. By implementing these changes, you can hopefully persuade lenders to offer you a loan.

With a greater understanding of what lenders see when they view your credit report and how they make a decision to accept or reject your application, hopefully you can improve your credit score and your chances of being approved for finance.


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