Qualifying for a Personal Loan is not as difficult as many people imagine it is – you’ve just got to do it the right way. Doing it the right way means understanding how risky your borrowing money looks to a lender and then finding lenders comfortable with that level of risk. This is, essentially, what brokers like Oyster Loan do for a living – we understand the borrower, we understand the lender, and we attempt to find the perfect match.
Oyster Loan is a broker and not a lender. We don’t actually lend any money ourselves – what we do is we introduce borrowers like you to the lenders who want to offer loans to borrowers like you. We thought it would be really helpful for you to understand how the process works so the team have written this article about it in which we cover:
- your credit score and how it’s evaluated
- the importance of an accurate credit report
- why it’s so important to keep up with your bill repayments
- something called the “debt-to-income” ratio, what it means, and why it matters
- how lenders view employment history
- the importance of only taking out loans you can afford
- how Oyster Loan does in seconds what it takes borrowers applying direct to lenders hours to do.
For all loan applicants, what’s on their credit report is vitally important. Lenders tend to keep pretty close to their chest what it is that they want to see on a credit report and this fact can sometimes make it very difficult for a potential borrower to decide which loan company to approach directly. After all, if you don’t know what they’re looking for, how do you know that they’re looking for you?
You should get to know your credit file and your credit score very well. Did you know that, for a small fee, you can have your credit report sent to you by the UK’s three major credit report compilers – Equifax, Experian, and CallCredit? Alternatively, you can check out apps like ClearScore and Noddle which provide you with access to them for free.
Equifax, Experian, and CallCredit have different scoring systems – they look like this:
Excellent credit score
|466-700 (maximum)||961-999 (maximum)||5|
Good credit score
Fair credit score
Poor credit score
Very poor credit score
|Up to 279||Up to 560||1|
Whatever your credit score, please do remember that there are dozens of companies out there competing for your business, even if you have a fair credit score, a poor credit score, or a very poor credit score. Why the information is important is that, if you want to apply directly for a loan, you can search for lenders who specialise in working with people with similar credit scores to you.
As soon as you get your credit report from Equifax, Experian, and CallCredit, the first thing you should do is to check to see if there are any mistakes contained within your files.
It comes as a big surprise to many when they learn that there are millions of credit reports which contain errors. That’s really important because lenders use these credit reports as part of their decision-making process and, if what’s on file about you is wrong, then you might be being penalised for no reason at all. You might have a much lower credit score than you actually deserve because someone somewhere has made an error typing your details into a computer.
Be sure to write to each of the credit reference agencies if you spot an error on your reports. Tell each of the agencies what the mistake is and ask them to correct your file without delay.
A credit report is like a scoreboard – a constantly updated scoreboard which is keeping a constant eye on whether you’re paying your bills on time. Your credit file keeps records of how you conduct any loan accounts, credit card accounts, bank accounts, and more including household suppliers like Sky, Virgin, the mobile phone companies, and your utility bills.
It’s OK to miss one or two payments every now and again – the chances are that your score won’t suffer as a result. However, your score will take a major knock downwards if you keep missing repayments. That’s because a lender will think that if you’re not organised to keep up with the payments you’re already committed to keeping up with, why should you keep up with theirs if they lend you money?
Paying your bills on time and in full every time makes a positive difference to your credit score.
Lenders consider something called your “debt-to-income” ratio when deciding whether they want to offer you a loan or not.
This is how it works. The limit on a credit account describes how much money you could borrow (or how much your original loan was for). The balance on a credit account describes how much debt you’re actually using (or how much of your loan/mortgage you’ve paid off).
They add up all of the limits on your current credit accounts – loans, overdrafts, mortgages, credit cards, store cards, and so on. This is so that they can understand just how much. They then add up all of your balances. They divide the two figures together and this gives them your debt-to-income ratio.
The lower your debt-to-income ratio, the better it appears to a lender. If you can, pay down as much credit card debt as you can as soon as possible. If your lender will allow it, you may also want to consider making overpayments on your loans and mortgage too.
One important thing we must share with you – if you’re considering taking out a loan to cover the repayments on another loan, your mortgage, or a credit card, you are in real danger of entering what experts call a “debt spiral”. Within a few months or even a year or two, you will find yourself in a situation where you have debt you can’t manage which you have no real hope of paying off. It’s a scary situation and the sooner someone realises that they’re in danger of being in a debt spiral, the better because they can look for help sooner.
Please contact one of the following charities as soon as you can for help and support:
Most lenders are happy to accept a mixture of wages and benefits when they’re assessing your income as part of their decision-making process on whether they’ll give you a loan or not.
It’s always better if you can demonstrate that you can stay in a job for a longer time. As part of your application, you might be asked for up to 3 years’ employment history. However, please don’t worry if you do contract work or regularly switch employers – there are funders out there happy to work with you and Oyster Loan will be happy to broker the loan for you.
On the subject of income, lenders do want to see that you have a regular and predictable stream of income coming into your household. They also like to know that, after all, your bills and expenses, you have money left over every month. The difference between what you spend and what you earn is called your “disposable income”.
The bigger your disposable income, the better, of course. But how do lenders consider it? When considering whether they’re going to give you a loan or not, they’ll look at how much disposable income you have each month against the size of the loan repayment you have to make. The bigger the gap between the two figures, the more chance you have of getting accepted.
Most lenders allow you to apply directly to them. However, we believe you should use a broker like Oyster Loan and we’d like to explain why we believe that using us is better than applying direct.
Remember earlier in the article when we mentioned credit files? One thing that credit files do keep a record of is the number of applications for loans, credit cards, and so on that you make. If you find 10 different lenders you want to apply to, in addition to the sheer amount of time you spend filling in the online forms, each lender is legally obliged to perform a full credit search on you.
If you make a lot of applications in a short space of time, you will discourage lenders from wanting to work with you because they’ll get the impression, completely unfairly, that you’re desperate for money and that each lender is turning you down. That’s a big red flag to them.
You also have no idea whether you fall within the “borrower profiles” of each of the 10 different lenders you’re making an application too.
We have dozens of reputable, established, Financial Conduct Authority-approved lenders on our panel, each of whom has shared with us their borrower profiles. When we get your details from your application form, we then apply for your credit file. Because our lenders trust us, we only need to download your credit file once, even if we’re presenting your application to ten lenders. That means that, by choosing us, you’re only being seen by lenders looking for borrowers like you and that your credit file only has one registered search on it.
That’s great for the future but it also saves you so much time.
Let Oyster Loan do the work for you – Click Here for our application form.