Affordability score

Spider1234

Hi, has anyone come across an affordability score that Banks use to assess how much credit you are able to afford. How important is this score for me? Do I need to know the score? And if it's bad, how can I improve it?
Thanks.

[Deleted User]

You'll never know how any given bank scores you.  But you'd improve your affordability by increasing your income and reducing your debt.  

Ebe_Scrooge

^^^^ This.  Each lender will have different criteria, which no-one (well, no-one outside their risk management department) is privy to.  You won't know if your debt/income ratio is good or bad as viewed by a particular lender, but in general if you can reduce your debt and/or increase your income, you'll stand a better chance of falling into a "good" category.

born_again

It's easy to work out.
Income V Debt. The greater the debt, the less the affordability.

But @Deleted_User is spot on. You will never get that data from a lender. As it is sensitive internat data, based on many different information. Both internal & external.

Brie

I would agree with the previous posters but with one revision - it's income vs available debt.

If you want a loan or a credit card and have a decent income and a small limit on a card that you use responsibly and a small loan you are steadily paying off then you may be considered a good risk to a lender.  

If however you have the same decent income and several cards with zero balance and high credit limits you have the potential to run up a substantial debt in a short period of time and therefore would be bad risk and unlikely to get any further credit.

Spider1234

Thank you all, really appreciate your response - that make sense but what are the benefits of me knowing if my affordability score? Or is it just beneficial to the banks? Thanks.

Ebe_Scrooge

There are no benefits, as you will not be able to find out how the bank scores you (I'm talking about their own internal scoring algorithm, not the meaningless number dished out by the reference agencies).  But it's just a general rule of thumb - the less you owe in relation to your income, then the better your chances of being placed in the "good" category by a lender.  But there's no way you will ever know their precise figures or rankings.

OK - if you want a really really crude baseline figure to work from, then aim to have a debt (excluding mortgage) of less than 50% of your income.  If you owe less than 50% of your income, that's good, more than 50% starts to look bad.  But, as I say, this is a very crude, wet-finger-in-the-air guideline.  Each lender has their own weightings and criteria.