The Loan Application Process Is More Than Just Your Credit Score

Planning your financial future requires that you have a good understanding of your credit score and financial situation. Therefore, it’s crucial that you comprehend what a credit report is and isn’t. Your ability to repay the credit that has been extended to you is determined by your credit score. It will be taken into account by all lenders before they grant you a loan, and they will be able to get a copy from the three credit bureaus. Your overall financial activity affects your credit score, which fluctuates, making it possible for different credit bureaus to assign different values to it.

A difficult task in and of itself is assessing a person’s financial situation and potential payment capacity. Multiple variables are included in a complicated formula that is used to calculate this. The amount and nature of your remaining debt, both revolving and installment debt, as well as how well you’ve paid off previous loans, how you’re currently repaying current debt, are some of the figures used.

Lenders may ask you additional questions during the interview or when completing your credit application in addition to those related to your credit score. The “Three C’s of Credit” — character, capital, and capacity — are determined using this process.

1. Character

Lenders can assess your character, dependability, and honesty by looking at your history of repaying debt.

Your credit report will address a number of queries, such as:

– Have you ever used credit before?

– Do you always make your payments on time?

– How long have you been residing at your current location?

– How long have you been doing this job now?

2. Capital

The question of your financial assets is one of the most crucial ones you will be asked on your credit application. If you have enough capital to cover the loan even if your income isn’t available, a lender will feel more comfortable approving you for a loan. Real estate, personal property, investments, and savings are some examples of these assets.

3. Capacity

Capacity refers to your capacity to pay back your debt. If you mention your job, the lender will ask if it generates enough income to support the amount of credit you are requesting or using. To this end, a lot of lenders typically pose a number of queries. These include:

– What is your current salary?

– What are your current living costs?

– What other debts do you currently have, besides those that are listed on your credit reports, and how much are the payments?

– How many people are you supporting?

If your Three C’s of Credit outlook shows that you have a good credit score, you are more likely to be approved for the loan you’re applying for and at a lower interest rate. If you are given the loan but the interest rate is high, you might need to take additional steps to improve your credit score, your capital, and your capacity.