For many work-at-home moms, the dream is to start their own business. And for many others, they already own their own business. Either way, starting a business requires a lot of start-up capital, and for most, that means taking out a loan. We’ll go over what lenders look for in a borrower, so you can get the loan you need.
When filling out an application form, you'll get an idea about what kind of information credit and loan companies are looking for. It's very important here to take note of the questions and answer them correctly to maximize the chances of you being accepted. Filling out your salary incorrectly, for example, may have a significant impact on if you're rejected or not. Also, if you aren't consistent about what address you put into the form and what phone number you use across several application forms, you may be flagged as a potential fraudster.
Have you dealt with the lender before?
One of the main things that lenders will research when you're applying for credit is your history with them. The data that the individual lender has on you will be some of the most valuable when considering you for a loan. If you've had issues with a particular lender before, it may be more likely that they will reject you, so consider this before applying.
Your credit files
As well as looking at your application form and any previous dealings you've had with the company, lenders will review your credit files. In the UK, these sit with Equifax, TransUnion, and Experian, and lenders generally use at least one, if not multiple agencies, to review your credit history. Each of these agencies takes a record of things like if you're registered to the electoral roll, if you have any court dealings and history of your addresses and lending history. These are combined to give a picture of your credit history.
What isn’t in your credit file?
There are many myths on what exactly is in your credit file, but a lot of what you may hear isn't true. The file is generally just made up of financial history, and things like your student loans, parking fines, online terminal uses, rejected applications, and your salary aren't included in the file.
How your credit score affects your loan offers
Once you've made an application and your credit files and application form have been checked, a lender will then offer you a loan with payment terms dictated by the level of risk given to you. This means that the interest rate on your borrowing, in particular, will vary depending on how risky you're perceived to be. In addition, the length of discounted or 0% interest rates on a credit card, for example, may be reduced if you're deemed to be higher-risk.
Taking online credit scores with a pinch of salt
Many companies offer a service to give you a definitive credit score that will predict your ability to lend. These companies use the same data and agencies as the banks to review your credit history and give you a score based on your history. This is an excellent guiding principle, but take it with caution as no one score can define what you may or may not be able to borrow. The reason that banks get additional information from you through their application forms is that the credit checks they run through agencies don't provide the full picture.