Know Your Bad Credit Loan Application
We all like to think of ourselves as fairly responsible and trustworthy people, especially when it comes to financial commitments. But the fact of the matter is that some people are more reliable and responsible than others and banks and other lenders know this.
The one thing and universal question, all lenders are interested in, is will you be able to pay back the loan? For all their complicated methods and computer databases, that one question is really all they are worried about at the end of the day. The only real way to find out this out is to speak to the person individually, get to know them, do business with them and see how they pay you back. However, in today's market with online banking, bigger and bigger customer bases and less personal relationships between bankers and their clients, banks and lenders have had to come up with alternative ways of assessing the credit worthiness of customers. lenders are vary much interested in applicant intention or motives and capacities to repayment, at the same time they also rely on their own skills to make the bad creditors to make repayments.
Credit assessment
The universal and most reliable method they have come up with for assessing credit capacity of the applicant is the credit rating, or credit report. This is a file that exists on pretty much every adult in the country that stores all sorts of relevant information that might give lenders a clue as to how you will act if they lend you money. Their prime concern to know any thing which might give any clue relevant to yours repayment capacity.
The credit report will contain all your personal information such as your name, address, age, gender and so on. This type of information will already start to give them a picture of how you are likely to act with credit. Generally speaking, a fifty five year old, is more likely to act responsibly then an eighteen year old, however, when you start to increase the age past sixty five or seventy, the risk increases that the borrower will not be around long enough to fully repay the loan. As well as your age, you address may give them a similar picture. It is a fact that people living within certain postcodes will be far more likely to repay loans then people living in other postcodes. So even before looking at any of your financial particulars, the bank will be able to give you some sort of score based solely on your personal details.
However, this will be a very rough picture and there will be literally millions of exceptions, for example, the wealthy business man on Park Lane who has avoided millions in loan repayments using clever lawyers will not be an attractive person to lend to no matter what his details say, and in the same way, a poor single mother struggling to make ends meet but who has paid every debt she has ever had in her life, in full and on time, is likely to continue with this habit and so will be quite an attractive person to lend money to.
so the credit report also contains the past financial habits , previous loan and repayment from other lenders, lender experience and their remarks ( like whether the applicant has paid them back in full and on time or there have been difficulties in repayment schedule). The credit report has a separate section financial - legal activities of the concerned like any past court judgment in money suit or any debt claims, any negative reference of debt collector agencies, any declaration of bankruptcy. All these records provide the lenders more clear view to decide what kind of borrower the applicant is and his/her attitude towards the debt in question.
So your credit report also contain a section listing your past habits and behavior. Previous loans from other lenders will be put up on the report by those lenders and they will record if you have paid them back in full and on time or if there have been problems with getting you to meet repayments. For the same reason, past court judgments against you in debt claims, references to debt collection agencies and if you have ever declared bankruptcy will also be recorded. This will give lenders a far fairer and more accurate picture of what kind of borrower you are and your attitude towards debt.
The applicant background: Your Background Counts
Finally, information such as your level of education, your employment, and your income will be in the report. The reason for this is to show how much money you earn or are likely to earn, and therefore, how much you will be likely to be able to afford to borrow and pay back. If we take the example of the poor mother above, who always repays her debts in full and on time, no matter how could her intentions, if she only earns fifteen thousand a year, no bank will be able to justify lending her five hundred thousand to buy a yacht and a nice house in the country side. Therefore, as long as they are satisfied that you are someone they want to lend to in the first place, your earnings will be significant in deciding how much the bank can safely lend you, and that you will be able to pay back.
The last section of credit report usually focuses on applicant's personal information such as educational qualification, current employment salary structure, liabilities family background and other information. This section helps the lenders finding out how much the applicant earns and what amount the applicant can pay comfortably as monthly installment, after subtracting the liabilities. To make it clear, let us assume, an applicant earns 10 thousand unit monthly and his personal expense comes at 5 thousand monthly and also pays a monthly installment of 2 thousand towards any other loan-It means his total monthly expense comes at 7 thousand and his saving is 3 thousand, which is the amount he can comfortably pay towards any other loan. Now, If he wants a loan of X amount of which the monthly installment comes at, say, 6 thousand to be paid for 48 months, very clearly he can't pay 6 thousand monthly. In this case the options are either to reduce the loan amount from X or increase the payment duration from 48 months.
The credit report will compile all of this information and present to lenders as a single score, with generally speaking, the higher the score, the better the chance that you will repay the loan. If all the information compiled on you leads to a low score, you will be classed as a bad credit loan applicant and the terms at which lenders will be willing to lend to you will be less attractive, if they will lend to you at all. You can see your credit report for yourself and if there are any mistakes on it that you think will worsen your score, you have a right to have them corrected.
