Understanding Lender Requirements

After you have applied for a credit facility either in the form of a loan or a credit card, the lender will need time to establish that you meet all the requirements for that particular facility. Depending on the number of requirements and the complexity of achieving them, the screening process will differ between institutions. Most lenders who take a keen interest in the requirements do so not only to approve credit but also set the most appropriate interest on a facility. Have you in the past experienced having to wait a long period of time before a bank or lender gives a response for your request for credit? While some lenders promise instant approval for loans and other credit facilities, they do not take into account the requirements at a personal level. This could mean that whether or not you have a good credit report, the interest charged on your facility will be the same as for an individual whose report is average. Today, with technology, it has become relatively easy to apply for credit because there are mobile apps as well as online platforms where the applications can be sent from. It may seem like lenders who use digital platforms do not have a checklist but if you consider that most people have online information that can be used to assess their credibility, a hard copy application is as good as a digital one. The following conditions are what can be termed as what is a good credit rating at the individual level;

History of credit – it might not have been necessary for you to take loans in the past but if you currently have the need to do so, most lenders will base their approval on past performance on credit. Good credit means that you have been responsible for your credit by making timely installments in full. Every credit facility extended to you is tracked and listed to form what is a good credit rating but it can also be negative if you defaulted or did not pay your installment in full.

Credit score – while a credit history shows activity on credit facilities over a certain period of time, the credit score is a three-digit figure that summarizes the risk level of a borrower. While every lender has a different minimum score for the various facilities they offer, the general rule is that the higher the score, the lower the risk. Since a good credit report is obtained from how credit was handled with past lenders, future lenders can base the credibility of a borrower by considering it.

Borrower capacity – the most important part of utilizing credit of any form is the ability to repay. By weighing the expected income against the fixed and anticipated expenses, a lending institution can determine how comfortable debt repayment is going to be for a borrower. Even if you have what is a good credit rating but your income does not seem sufficient to finance debt, most lenders will shy away.

Collateral – you will need to produce collateral only when you are applying for secured loans or credit cards. Having security items that can be used to offset the loan in cases of a default is a good idea and that is why lenders are quick to extend auto and home homes. If you have a good credit history and score, the lender will deduct the value of the collateral from the loan amount requested and it is the balance which determines how much interest the borrower will pay.

Capital – lenders are concerned of how much you make in a month because this is your primary mode of repaying the loan facility you take with them but equally important is capital that is held up in investments or savings. In the event of setbacks that render you unable to repay your loan, these capital items can be used.

Plan for facility use – while it may not help to repay the loan, your lender will in most cases want to know how the money you are taking is going to be used. This is a question many borrowers do not want to be asked, but lenders want to know how economic and environmental factors could influence recovery of their funds.