• Angela Dye

Understanding risk factors when it comes to lending

Updated: Jul 29

We have been led to believe that the banks and lending organisations are in the business of lending money, however this is not exactly true. They are in the game of risk.

If you are a good risk for them they will do business with you. If you are considered not a good risk then they will not do business with you. The question is, what determines your risk value with the banks and lending organisations?

There are many factors that may influence a lender's decision to do business with you. Below we will discuss a few.

One of the most important factors is your credit report. Your credit report is a listing of every time you have applied for or taken credit over the years. An example would be if you currently have a home loan then there would be a footprint on your credit report stating the bank that you have the loan with, the loan amount that you borrowed and if you have defaulted on that loan then you would have a default against your name.

Whenever you apply for credit a footprint will go on to your report and will stay there for 5 years. If you default on a credit contract, then this will put a notation on the report saying that you have defaulted. Even if you have paid the debt in full it will remain on your report for 5 years. In cases such as Bankruptcy or court matters they may stay on the report for 7 years. There is a minimum number of footprints the lenders are comfortable with on any credit report. Remember that any time you go online and apply to see if you can get credit and they mention that you can get immediate approval that means that they are running a credit check on you and it will add to your list of credit enquiries.

Another point that is important is your employment history. The more stable your employment is the better risk you are to the lender. It is important to build a good employment history if you are looking at borrowing money. The longer you stay with an employer the more comfort the lenders will have with you

Having savings in the bank show that you can save money despite your lifestyle choices. If you can get yourself into a pattern of saving something each paycheque, then that is looked upon favourably by the lenders.

Your address history is another important factor as again it shows stability of the borrower. If you are changing addresses every few months, then the lenders get nervous about whether they would locate you easily.

A lender will look at your current assets and liabilities. This will help determine your serviceability for the loan you have applied for. You should keep to a minimum, credit cards and personal loans as these have an adverse effect on your borrowing capacity.

These are a few of the main factors in whether you will be approved for a loan by any lending authority. If you are looking to borrow and are unsure of where you stand risk wise make a booking to speak with Angela Dye.

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