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Recognising That You Are a Borrowing Risk

By: Garry Crystal - Updated: 27 Jun 2012 | comments*Discuss
Borrowing Risk Lenders Credit

A poor credit record will mean that the ability to borrow from a wide selection of lenders is seriously diminished. Recognising that you are a borrowing risk and rectifying the situation will be beneficial towards future borrowing with reasonable interest rates.

Refusal of a Credit Agreement Application

Thousands of customers every day have their credit applications turned down by high street lenders and banks. It’s not uncommon for a credit application to be turned down for a number of reasons but the customer’s risk to the lender will be a major factor. If a customer has been turned down they do have the right to find out the reason; this can be done be contacting a credit reference agency. But the actual reason for the refusal may not be detailed in a credit reference. Customers who are trying to assess whether they are a borrowing risk should understand the borrowing criteria applied by lenders.

Consequences for Customers who are Borrowing Risk

Customers with poor credit references are no doubt already aware that they are a bad risk for many lenders. Any customer applying for credit with a poor credit history will be used to the standard lender’s refusal letters. Lenders may sometimes be open to supplying credit but the interest rates will not be great, and are sometimes nowhere near the best available. Being a borrowing risk can mean refusal of mobile phone contracts, higher purchase agreements and difficulty when trying to rent accommodation. A poor credit reference can follow a person for many years and can seriously hamper their financial dealings

Customer Borrowing Risk for Lenders

Whenever a customer applies for some form of credit a lender will assess the customer’s risk status. Lenders will use a number of different factors to assess a customer’s lending risk. A customer’s credit history will be one of the assessment factors as this will give details of financial responsibilities and can help when checking a customer’s identity. Credit references can be used to check previous bankruptcies, defaulted credit agreements and simply whether or not the customer repays on time every month. The credit reference is helpful to lenders but is not the only reason why a lender may turn down or provide credit.

Making Your Own Borrowing Risk Assessment

Customers who are considering applying for credit should assess whether or not an application will be successful. This means checking whether they will fulfil a lender’s borrowing criteria. Unfortunately there are no set in stone rules as to how a lender assesses customer risk. Two lenders may judge a customer application and one may refuse while another may say yes due to less stringent lending rules. But the more lending eligibility requirements that have been met the lower the customer risk is for lenders.

Decreasing the Risk to Lenders

A number of issues will help to increase the likelihood of a successful credit application. These will include:

  • The customer is a homeowner or has rented the same accommodation for a number of years
  • The customer has a long term bank account
  • The customer is financially stable and had been employed for a number of years with the same company
  • The customer is able to verify identity details and is registered on the electoral roll
  • The customer does not have multiple credit commitments elsewhere or undergoing a debt solution
  • The customer has a good track record of making payments in full and on time
  • Secured borrowing will help to decrease risk for the lender but is not always the wisest option
  • The customer has no attachments detailed of a spouse or partner with a bad credit record living at the same address

Putting a Bad Credit Reference Right

There are ways to improve a poor credit reference but this will take time. If a customer has been turned down they should obtain a copy of their credit reference from one of the three reference agencies. If a previous debt is still outstanding on the reference but has been paid, then the credit company should be contacted to have this removed. Clearing multiple credit accounts or moving them to one account will help to decrease the risk of missed payments and defaults on a credit reference. Do not apply for multiple credit applications at the same time, this will damage a credit reference.

If a customer is aware that they are a bad borrowing risk then they should take steps to rectify this before applying for credit. If the customer is a borrowing risk then continually applying for credit applications will simply damage a credit reference further. Avoiding credit applications and decreasing the borrowing risk by repairing a credit reference is the wisest option.

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