The most important criteria for lenders?

MSR01

What's the most important criteria that lenders look at when judging eligibility? Is it employment status (full,PT,self, etc.), income threshold, home ownership?

This question was inspired by my current inability to get any kind of loan from anyone... according to the loan checker on this website. I'm a self-employed sole trader and wanted a personal loan of 7k for home improvements, but the loan checker says I'm not a good bet.

I just wondered what my biggest flaw as a prospect was, from their point of view? Because I know I'm good for it.

MorningcoffeeIV

There isn't one. 

They all work in conjunction with each other.

If you provided some detail, some of us could take a well educated guess.  You could also try lenders' own eligibility checkers, rather the more inaccurate one on this site.

MrFrugalFever

I think self-employed is generally considered higher risk due to volatility in earnings but shouldn’t be the overarching factor.
Each individual is assessed differently by each lender as they have their own commercially sensitive criteria, with that in mind, the suggestion above to use each lenders own eligibility checker is best advice.

just remember to ensure the info you input in each application is consistent at all times.

MalMonroe

One important criterion - creditworthiness.

More is explained in the info in this link - https://www.fca.org.uk/publication/consumer-credit-information/consumer credit-understanding-cc-creditworthiness-affordability-web.pdf

As MrFF says above, being self-employed can sometimes affect lenders' decisions. But there are other factors which are also considered.

CliveOfIndia

The previous replies are all very valid - self-employment may be viewed as slightly more "risky" than being an employee, but it's probably marginal (and in this day and age, it's arguable whether self-employment is any less stable than "ordinary" employment anyway).  And there is not really any single factor that's "most important" - each lender will have different criteria, and will assign different weightings to each element.

A couple of things that may be worth checking.  Firstly, affordability - how much debt do you currently have?  A lender will factor this in to their calculations - it could be, for instance, that they feel an extra £7k will take you above their affordability threshold.

But also, check all 3 or your credit files.  Ignore the meaningless score the CRAs give you, along with their view of your credit-worthiness.  But do check the underlying data for accuracy.  Have you got any negative markers (missed/late payments, CCJs, defaults, etc.) ?  Are you registered on the Electoral Roll?  Is your current (and any previous) address information correct?  Whilst each lender will have different criteria, these items tend to important considerations for most lenders.

Nebulous2

The most important thing for a lender is that you repay your loan and they make some money from you. 

That is obviously more complicated than it sounds, so they all have some differences in how they assess the likelihood of that happening. 

Stability, in employment, address and income all help as does being on the electoral roll. In addition to that lifestyle, whether you have spare money every month or drive up to the margin by using overdrafts etc.

Finally as they say in recruitment, the best predictor of future behaviour is previous behaviour. In other words if you have repaid loans religiously in the past you have a good chance of doing so in the future. That means having a record of good use of credit to help their assessment. 

born_again

You available debt to income %
Credit history
Their appetite for debt/new customers

enthusiasticsaver

Self employed is probably their least preferred option as it is generally considered to be more risky.  It is a combination of things though and sometimes you just don't meet the criteria which can change from time to time. They look at how long you have lived at your current address, homeowner/tenant, current debt outstanding and ratio of credit to limit used. Affordability is a big thing now so if your income is low and current debt outstanding high that might have an impact. 

MSR01

Thanks, all, for your replies. Unfortunately, they've left me even more stumped! I have no current outstanding debts (seems unlikely, I know, but I cleared them in the last couple of years.) It helps not having a mortgage, of course... rare that this can be a help! I share a house with friends and family, and pay into that. We've all been here for years, so very stable. I've never missed a payment when repaying loans. I went overdrawn by a few quid once in the last three years. My credit score has been as high as 996! It dropped to 994 after I asked my bank about my eligibility.

Hang on, does that mean they don't trust it? Is it unrealistically high?

So, being self-employed and having an unbelievable credit score? Kiss of death?

LunaLater

Do you own the house?

If you don’t then that may be why lenders are cautious. Borrowing money to improve a house which you don’t own while not unheard of is less usual than borrowing for one which you do.

MSR01

LunaLater said:

Do you own the house?

If you don’t then that may be why lenders are cautious. Borrowing money to improve a house which you don’t own while not unheard of is less usual than borrowing for one which you do.

You may have sussed it.