How Do Lenders Determine Your Credit Risk?

When you’re borrowing money from a professional lender (as opposed to a personal loan, for example), the conditions of the loan will change according to your own personal situation. Many things play into this, and it can sometimes feel like you’re being treated unfairly. But look at things from the lender’s perspective – it’s a business that’s supposed to make money at the end of the day. If they allowed high-risk borrowers to take out loans with the same conditions as regular ones, they would eventually run out of money.

That’s why lenders need to change certain factors of the deal to compensate for the percentage of borrowers that do eventually default on their loans. If you want to make yourself look as attractive as possible in the eyes of a lender, you should keep several factors in mind.

Your Job

Not all lenders are going to care about your job or how much you make. However, if you’re seen as a higher risk than other customers, you might have to provide proof of income. This is also a standard procedure with some specific types of loans, like payday loans. The amount you earn will directly determine certain conditions of the loan in those cases, most notably the limit on how much you are allowed to borrow. Keep in mind that some lenders might not tie the loan’s repayment date to the actual date on which you’re getting paid yourself, which can put you in an uncomfortable situation if your money comes in a few days after you’re supposed to pay the next installment.

Your Credit History

How well you’ve behaved as a borrower in the past will also influence the way lenders see you – which makes perfect sense, after all. Nowadays, it’s easier than ever to track a person’s actions related to their finances, and there are many tools creditors can use to take a better look at you. Your credit history is a summary of everything that might be of interest to a creditor, so you should make sure to pay all your bills and loan instalments on time. Otherwise, you may have to look for loans with worse conditions than you’d normally be entitled to.

Your Assets

How much you own is going to be a factor as well in some cases. When you want to take out a secured loan, you have to put something up as collateral, and the value of that asset is going to determine how much you can borrow and how fast you have to pay it back. Something like a house can give you access to quite the good deals, but it’s also a huge risk. If you’re not sure that you’re capable of paying back that loan on time, you face the very real prospect of homelessness! And that’s bad enough when you’re on your own, but when you’re also responsible for a family, you have to be really careful with decisions of this calibre.

Your Attitude

Lenders are people, too. They will take note of how you present yourself and what kinds of vibes you give off. Try to make a good impression – show up showered and nicely dressed, and be pleasant in your conversations. This might not seem like much, but remember that the person you’re talking to will often have a lot of control over certain conditions of the loan. They might be willing to extend it for a bit longer, or knock off a bit of the interest rate if you have a reasonable argument for that. Your chances of this happening are significantly reduced if you seem like an unpleasant person. Plus, it might make lenders question your willingness to pay off the loan in the first place, which is something you don’t want happening at all.

Working with the Same Lender

There are other factors that might also play a role in the whole ordeal. If you’ve taken out loans with the same company before, they will consider how you’ve handled those. Sure, they already have access to your credit score, but deals done directly with the same company will have much more weight in that consideration. If you are responsible with the way you use loans, try to take advantage of that. Bring it up during the discussion of your loan terms, and point out that you’re a low-risk customer who should probably get slightly better conditions. After all, the company stands to profit from that in the long run as well – they will have a recurring customer who they know is dependable. If you run a personal business or do anything else that might have you frequently taking out loans, building a relationship with a specific lender might not be a bad idea at all.