Loans
Australia

What the Banks don't tell you

How do Lenders decide whether to say Yes or No to an application for a loan?

While each lender applies a different importance to each of the 6 'C', they all use them in deciding whether to approve the Loan or not.

The 6 'C' of Credit Assessment are:

 1/  Capital

• What is the Customers Asset Position?
• Do they own their home, or have substantial equity in it?
• Do they own, or have equity in other real estate?
• Do they own, or have equity in Vehicles, Bikes, Boats etc.?
• Do they have Savings, or Investments?
• Do they have Home Contents, and is it Insured?

 2/  Capacity

• Can the Customer Afford to make the Repayments?
• Does the percentage of expences to income meet the Lenders Guidelines?

 3/  Credit

• What does the Customers Credit File look like?
• Are there any defaults? Especially with regards to other loans.
• Were previous loans at the same repayment level?
• Do the details on the application match the Credit File? Has False Information been given?

 4/  Collateral

• What is the Security Like?
• What is the Loan to Security Ratio?

 5/  Character

• How stable is the Customers home life? Have they moved around a lot?
• How stable is their work life? have they had many different jobs and employers?
• How many enquiries on their Credit File? Are they Credit Shopping?
• Have the other applications for loans been approved or declined?

 6/  Conditions

• Are their outside factors?
• Is their employer filling for bankruptcy?
• Is there a Police Warrant out for the Customer?
• Has the Customer been flagged as a security risk?

Understanding your strengths and weaknesses will help you successfuly apply for the loan you are seeking.

It is critical that you complete an application for a loan completely and accurately. Do not put false or incomplete information in your application, hoping to make it 'look better'. Lenders have many ways to check, and if they find discrepancies in your application they will automatically decline your application and make a note on the file that mis information was supplied.

It is also very important you know exactly what is on your Credit File, and make sure that your applications details match it.

Get Your Credit File and Report  

What was the Reason?

Often all you will be told is that 'You don't meet our lending criteria', and while this is not very helpful, before you apply again adding another enquiry to your credit file, you must look at the 6 'C' and be objective about your application.

Would you lend your money to a profile like yours? Is there a large risk that you will not be paid on time?

Below are the major reasons why people are declined when they have applied for credit:

• There are a large number of enquiries on their credit file, in a short space of time, which indicates 'credit shopping'
• There are defaults listed on the credit file
• The time to pay any default listed was many months/years, or worse the default is unpaid
• The applicant can not afford to meet the repayments, using the basic test for affordability
• The applicant has lied on the application, or there are inconsistancies with facts uncovered by the lender

The first 3 deal with a persons credit history, and what is contained on their credit file.

Before applying again, it is important to your credit rating, that you know exactly what the lenders like the banks are seeing. What is on your credit file? Is it accurate? If it is accurate, you are then in a position to fix the issue before you apply again.

My Credit File Report is a business that supplies you with a copy of your credit file, and a comprehensive report on what it contains, with Tips and Advice on how to fix any credit issues, before you apply again, plus your credit score and the liklihood of an approval for credit based on your credit file

Get Your Credit File and Report  

The fourth reason listed above why people fail to be approved for credit is bcause they can not afford to make the repayments and live, according to the lenders 'Capacity' guidelines. The government places a minimum standard on all lenders so that lending is done responsibly and people are not placed in financial hardship trying to pay back a loan they simply can't afford to pay.

People on a pension are the most common group that are declined credit. If you are on a pension from the government other than a TPI pension, chances are that you will not be successful even with 'Payday' Lenders for more than $1,000, and most limit loans to people on a pension to $500.

So if you are on a pension you are only going to damage your credit rating further by applying for thousands of dollars, because you simply will not be approved.

Apart from capacity, which is either a yes you meet it, or no you don't, the other lending criteria, or 6'C' are a little flexible in the scheme of the overall application. For example you may have been in your job for only a short time, but you have lived in your place of residence for 10 years, so while one aspect will be weak, another may be very strong, and could tip the balance for an approval in your favour

The last point is something you must just accept as fact, and that is...
DO NOT LIE ON YOUR APPLICATION... YOU WILL BE FOUND OUT