Affordability: How To Pass The Test

May 16, 2018 Icon 4 mins read
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Affordability is important. Lenders consider it when assessing a credit application, which is why it’s a factor in your free Lender Report. To put it simply – if you can’t afford to take on new credit, you probably won’t be accepted. Read on to find out how all this works, and what you can do to pass the affordability test.



Why does this matter?

Lenders use information about your affordability to decide whether you will be able to repay new credit comfortably. If they believe you will struggle to make repayments on-time they likely reject your application. Alternatively, they may offer to lend you a much smaller amount at a higher rate of interest. Managing your affordability can be an important step towards borrowing what you need.

Your Lender Report considers the four main aspects of your affordability:

Repayment Spending

This informs lenders how much of your income you’re spending on repaying existing debt. If this is a high percentage, it could hurt your chances of further borrowing. It’s a monthly average of your repayments against your gross monthly income. For greater accuracy, your repayments across three months are used.

Overdraft Usage

Lenders will look at how you’ve used your overdraft over the past year. Dipping into your overdraft can suggest your income isn’t covering all your monthly expenses, and you are using it to make ends meet. Frequent overdraft use is often a worry for lenders, as is spending beyond your agreed overdraft limit (unauthorised spending).

Credit Card Repayments

Lenders look to see if you’ve paid higher than the minimum repayment on your credit card, over the past month and year. Paying the balance in full every month displays excellent credit management and good affordability. However, a string of minimum payments suggests you’re financially stretched. Everything is relative, so your income and the percentage of your balances you repay make a difference here too.

Payday Loans

Lenders will check whether you’ve used any payday loans over the past year. Payday loans are a big red flag for lenders because they make you seem desperate for money. Even if you make repayments on time each month, a payday loan can seriously hurt your borrowing chances.

How can I improve how lenders score my affordability?

If you want to pass the affordability test, you need to show lenders that you can afford your existing debt without the need to dip into your overdraft or take on short term loans. This can seem like a frustrating task, and with so many websites offering generic advice, it’s never clear how such actions will affect your unique circumstances and your overall creditworthiness.  At Credibble, our smart technology does all the hard work for you. You’re given specific insights on how to improve and personalised actions to show you exactly how to get your finances in shape. This is in your free Credibble Score Booster.

What happens if I give false information to lenders?

When applying for credit, applicants may be tempted to disclose some expenses while withholding others. Sometimes, they even try to exaggerate their income to get accepted for a loan or increase the amount they can borrow. Our advice: just don’t. It can make your financial situation a whole lot worse if you borrow more money than you can afford to pay back. Worse still, false information on your application can also cause problems with future credit applications. Lenders use fraud prevention technology to flag-up inconsistencies on previous application forms, so it’s is best to be truthful.

The bottom line

Loan affordability checks are a way lenders can decide if you can afford to repay the money you borrow. It’s important that your credit history backs this up and shows lenders that you’re in the best financial position possible before you apply.

With Credibble, you can find out exactly where you stand and get personalised tips on how to improve how lenders see you. And the best thing? Everything we offer is completely free. Get started to boost your chances of passing affordability checks.

About the author
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Claire Ben Chorin

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