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    • Earthwrm
    • By Earthwrm 9th May 18, 9:01 PM
    • 8Posts
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    Earthwrm
    How to Improve Loan Affordability Score?
    • #1
    • 9th May 18, 9:01 PM
    How to Improve Loan Affordability Score? 9th May 18 at 9:01 PM
    Hi Everybody,


    I'm hoping somebody can help me here as I seem to have made an error in my judgement about how lenders judge applicants, having just joined the Credit Club.


    For a number of years now I having been planning to apply for a large loan - £23K over 7 years at around £300 per month. As a result I have consistently saved £300 per month into an ISA for about 5 years to prove that I can afford the payments.


    I then joined the Credit Club to find out that although my credit score (whatever that is worth) and everything else is great, my affordability score is low and it states I am unlikely to get loaned such a large amount. My outgoings are very low compared to the 'average' and I CAN afford it, but I have learned that apparently lenders don't see savings, and judge me by the average outgoings of others, and that perhaps I could improve my score by reducing any existing debts?


    This makes me think - would I be better to use a little bit of the savings to clear my credit card and transfer the rest into my current account, if this would help show I have 'spare cash' and no other debts?


    Even aside from all this I still have two lenders on the Credit Club list with a 90% of accepting me. It's just this is really important (obviously!) and I don't want to mess it up and get declined if there is something I can do to improve my chances. Although I have had a responsibly used credit card for years this will be my first loan application and I'm not familiar with how it all goes.


    I hope one of you knowledgeable types can help me.


    Thank you!
Page 1
    • zx81
    • By zx81 9th May 18, 9:07 PM
    • 16,792 Posts
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    zx81
    • #2
    • 9th May 18, 9:07 PM
    • #2
    • 9th May 18, 9:07 PM
    Don't worry about the score. It has no meaning.

    Lenders will look at your current debt, plus the amount you are ask for and compare that with you income. You'll probably need to be looking at a 50-60k income for that size of loan.

    Are you in the right sort of ballpark?
    • tonycottee
    • By tonycottee 9th May 18, 9:11 PM
    • 1,085 Posts
    • 2,074 Thanks
    tonycottee
    • #3
    • 9th May 18, 9:11 PM
    • #3
    • 9th May 18, 9:11 PM
    How much is your credit card debt? The fact is, if you are saving £300 per month and your card debt is rising by £300 per month, that doesn't make you an attractive lending proposition.
    As a rule of thumb (but not always) lenders don't like to lend you more than 50% of your annual earnings on an unsecured loan. So you may struggle if you don't earn in the region of £50k.
    • DCFC79
    • By DCFC79 9th May 18, 9:38 PM
    • 31,599 Posts
    • 19,940 Thanks
    DCFC79
    • #4
    • 9th May 18, 9:38 PM
    • #4
    • 9th May 18, 9:38 PM
    What doe's the card debt consist of ? Is it just day to day spending ?

    Maybe look at your spending.
    Can people stop loaning money/being a guarator to family/friends, it rarely ends well and you lose out as your money is gone or you get shafted with being a guarantor.
    • Earthwrm
    • By Earthwrm 9th May 18, 9:39 PM
    • 8 Posts
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    Earthwrm
    • #5
    • 9th May 18, 9:39 PM
    • #5
    • 9th May 18, 9:39 PM
    Hi guys and thanks for getting back to me.


    No, my income is around half that. My credit card debt is around £1K and coming down steadily, but I guess I naively thought that if I could show I could afford the payments AND reduce my debt that it would go in my favour.


    So do those 90% chance offers not mean anything then? Is this really just a hopeless dream? One was with the AA and the other with the Post Office if either of them look a little more favourably on me...
    • zx81
    • By zx81 9th May 18, 9:50 PM
    • 16,792 Posts
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    zx81
    • #6
    • 9th May 18, 9:50 PM
    • #6
    • 9th May 18, 9:50 PM
    Every lender has different criteria, so no one can say it's definitely impossible.
    impossible.

    It's just very unlikely.

    Not being able to clear a £1k debt will be a very concerning factor for a lender.
    Last edited by zx81; 09-05-2018 at 10:00 PM.
    • DCFC79
    • By DCFC79 9th May 18, 9:55 PM
    • 31,599 Posts
    • 19,940 Thanks
    DCFC79
    • #7
    • 9th May 18, 9:55 PM
    • #7
    • 9th May 18, 9:55 PM
    Hi guys and thanks for getting back to me.


    No, my income is around half that. My credit card debt is around £1K and coming down steadily, but I guess I naively thought that if I could show I could afford the payments AND reduce my debt that it would go in my favour.


    So do those 90% chance offers not mean anything then? Is this really just a hopeless dream? One was with the AA and the other with the Post Office if either of them look a little more favourably on me...
    Originally posted by Earthwrm
    So your wanting to borrow 23k on say 12.5k wage ?

    Dont like your chances to be honest. How much have you saved so far ?
    Can people stop loaning money/being a guarator to family/friends, it rarely ends well and you lose out as your money is gone or you get shafted with being a guarantor.
    • Earthwrm
    • By Earthwrm 9th May 18, 10:07 PM
    • 8 Posts
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    Earthwrm
    • #8
    • 9th May 18, 10:07 PM
    • #8
    • 9th May 18, 10:07 PM
    Sorry, I didn't write that very clearly. My income is around £21-22K (as in around half of £50K). My current savings are £10K.

    Hmm.

    Thanks guys. I guess I've got nothing to lose by applying then eh. Just out of interest, would it make any difference (even slightly) to clear the credit card and transfer my ISA across?
    • zx81
    • By zx81 10th May 18, 5:30 AM
    • 16,792 Posts
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    zx81
    • #9
    • 10th May 18, 5:30 AM
    • #9
    • 10th May 18, 5:30 AM
    It would certainly be an improvement.
    • Earthwrm
    • By Earthwrm 10th May 18, 6:07 AM
    • 8 Posts
    • 0 Thanks
    Earthwrm
    Well that's the card paid off and my bank balance increased anyway. I guess I was also under the mistaken impression that a little bit of debt is a good thing to see in their eyes. Oh well, this is how we learn I suppose.


    Thank you all for your kind and speedy responses. We shall see what the future holds.
    • John-K
    • By John-K 10th May 18, 6:46 AM
    • 654 Posts
    • 1,004 Thanks
    John-K
    If you need £23,000 can you not use the £18,000 that you now have in your ISA and just borrow the other £5,000?
    • sourcrates
    • By sourcrates 10th May 18, 6:47 AM
    • 13,989 Posts
    • 13,254 Thanks
    sourcrates
    If you have 10k saved you only need to borrow another 13k for whatever purpose you have intended for it.

    That would be a more realistic proposition.
    I'm a Board Guide on the Debt-Free Wannabe, Credit File And Ratings, and
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    • paddyandstumpy
    • By paddyandstumpy 10th May 18, 7:15 AM
    • 1,031 Posts
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    paddyandstumpy
    For a number of years now I having been planning to apply for a large loan - £23K over 7 years at around £300 per month. As a result I have consistently saved £300 per month into an ISA for about 5 years to prove that I can afford the payments.
    ...
    Originally posted by Earthwrm
    Sorry, I didn't write that very clearly. My income is around £21-22K (as in around half of £50K). My current savings are £10K.
    ...
    Originally posted by Earthwrm
    Check your maths. The two highlighted bits contradict each other.

    Regardless, if you want a £23k unsecured loan on a £21k salary I'd say you'll struggle.
    • adamditz
    • By adamditz 10th May 18, 8:06 AM
    • 11 Posts
    • 4 Thanks
    adamditz
    That was the first thing i noticed, £300 a month for 5 years is 18k - if you’ve only got 10k savings (9k if you minus the credit card debt) that means that you’ve had to go back and take exactly half of that 300 a month back out, meaning that in reality what you can afford is 150 a month
    • Earthwrm
    • By Earthwrm 10th May 18, 10:13 AM
    • 8 Posts
    • 0 Thanks
    Earthwrm
    Hi John-K and sourcrates - I'll need £23K in addition to my savings for this project. I've just delayed applying for the loan until I'd be needing it as it enabled me to increase my budget by £300 every month I held off. I figured once I had the loan my 'spare' £300 would go to paying that off and my total pot would no longer increase.

    Hi paddyandstumpy and adamditz - All my expenditures for the project have come out of my savings so far - that's what I'm saving for after all, which is why the maths appear not to add up. I'm not using it to pay my gas bill or anything and I have kept a comprehensive diary of what money has gone where. Shame that doesn't seem to mean anything. £400 of the credit card bill is my monthly food shop, the remainder is an unexpected car repair and that goes down by £300 per month as I pay off £700. It would have been gone soon - as it happens it's all gone now on the advice of previous posts. And I can comfortably afford £300 on top to the savings per month on my salary.

    I have learnt now that I am unlikely to get my loan, which is tough to accept but there we are.
    • Herzlos
    • By Herzlos 10th May 18, 10:31 AM
    • 7,201 Posts
    • 6,464 Thanks
    Herzlos
    What's the project? What are you trying to achieve/do with the money that is relying on needing to borrow so much of it?
    • MEM62
    • By MEM62 10th May 18, 11:57 AM
    • 1,571 Posts
    • 1,193 Thanks
    MEM62
    I have learnt now that I am unlikely to get my loan, which is tough to accept but there we are.
    Originally posted by Earthwrm
    Depending on what the 'project' is there may be other ways of financing it. If you provide the details you may get some useful advice.
    • Sncjw
    • By Sncjw 10th May 18, 12:34 PM
    • 1,766 Posts
    • 1,047 Thanks
    Sncjw
    Ask yourself this would you loan 23k to someone who only earns 21k. You wouldn!!!8217;t would you:

    Is the isa a help to buy isa?
    • Pixie5740
    • By Pixie5740 10th May 18, 12:44 PM
    • 12,109 Posts
    • 17,042 Thanks
    Pixie5740
    Your savings do count for something, they mean that you can borrow less money. However, as you've found out savings accounts are not reported to the credit reference agencies.

    Are your current account and ISA with the same bank/building society? If so you could apply to them for a loan because they can see how you manage your money. Loan decisions aren't just down to credit history, lenders also take into account affordability and past dealings with them as a bank/building society.

    If you are budgeting correctly then you should have an emergency fund set aside for times when you have an unexpected expense, such as the car repair bill you mention, so that you don't have to use credit cards or dip into other savings.
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