How Lenders Calculate Your Credit Limit

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When I got my credit report from the Credit Report site http://www.creditreport.co.uk it explained that lenders also use factors outside the credit report to assess financial status and gave a couple of example calculations of the type lenders may use.

1. Short-term debt-to-income ratio:
Add up your total short-term debt payments excluding mortgage (so I assume credit cards, store cards, hire purchase, and any other loans) and some lenders may refuse you credit if this is more than 20% of your annual income.

2. Another method is to add up your monthly bills (not including rent or mortgage and utilities) and lenders may look for this total debt to be less than 35% of gross income.

Does anyone know of other guidelines that lenders use, that are not part of your credit report, to calculate ability to pay when setting credit limits?

It would be useful to have a list of any examples people have experienced or know of that lenders use to set limits in this respect.
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  • ShelfStacker_3
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    I'd be very doubtful there'll be many verifiably true examples posted here; details of lending criteria are generally considered trade secrets.
  • AntWal
    AntWal Posts: 15 Forumite
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    Difficult to verify anything for sure. But it may still be interesting to get some general yardsticks if anyone has worked in the lending industry?
  • normanmark
    normanmark Posts: 4,156 Forumite
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    Some, if not all, use their own internal scoring, you'll never get the scoring systems to calculate how much of a limit you can get.
  • stevsand
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    AntWal wrote: »
    I've seen a few posts asking about why lenders sometimes turn down credit applications even though the applicant's credit report has no obvious problems. I got some information from the Credit Report site http://www.creditreport.co.uk It gives a couple of example calculations lenders may use.

    1. Short-term debt-to-income ratio:
    Add up your total short-term debt payments excluding mortgage (so I assume credit cards, store cards, hire purchase, and any other loans) and some lenders may refuse you credit if this is more than 20% of your annual income.

    2. Another method is to add up your monthly bills (not including rent or mortgage and utilities) and lenders may look for this total debt to be less than 35% of gross income.

    These are two methods. Lenders can get a credit report to look at your credit history as well, but does anyone know of other guidelines that lenders use to calculate a credit limits?

    It would be useful to have a list of ways different lenders set limits.
    Your not even close.
  • nickmack
    nickmack Posts: 4,435 Forumite
    First Anniversary Combo Breaker First Post
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    I'd be very doubtful there'll be many verifiably true examples posted here; details of lending criteria are generally considered trade secrets.

    I'd agree, unless you actually wrote the program to assess the risk or you were involved in calculating how to rate customers, it's unlikely any employee of a bank would know.
  • _Andy_
    _Andy_ Posts: 11,150 Forumite
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    stevsand wrote: »
    Your not even close.

    Possibly the least informative post I've ever seen.
  • jamalfatty
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    I dont believe its even worth putting a list together, will just cause the inevitable "I met all the criteria this thread says but was still refused....." questions.

    What one lender may consider pertinent to an application another might disregard completely, and even in the unlikely event of you compiling a complete list, you still wont know what weighting each one is given
  • ShelfStacker_3
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    bertieo wrote: »
    I worked where there was a checklist for reviewing credit applications. If the question was assessing ability to pay the criteria was that household expenses and monthly credit payments other than mortgages had to be less than 40% of income.

    That's odd, I can't think of anyone whose bills are less than 40% of their total income... if you don't mind me asking, where were you working, and whose applications were you checking?
  • AntWal
    AntWal Posts: 15 Forumite
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    So far in this thread it looks like if it is a mortgage application lenders may exclude the existing or proposed monthly mortgage payments, and then run some calculations on your other outgoings as a proportion on your income.

    The two examples on the web site suggested:
    Non-mortgage credit owed less than 20% of annual salary
    Non-mortgage monthly credit payments and all monthly bills less than 35% of gross monthly salary

    Another post to the thread said one lender prefers non-mortgage monthly credit and household expenses less than 40% of monthly income.

    It's starting to look like mortage lenders may want to see in the region of 50% or more of monthly income available to finance the mortgage. Does this sound about right?
  • nomoneytoday
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    They look at stuff like:

    How long have you lived at the same address
    Do you own your house, rent, or live with parents
    Salary / Income
    Expenditure
    Other debts
    How long you have been with that institution
    How much can they make out of you
    Previous payment history
    CCJs or worse...
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