For most loans under £150k then nearly all lenders will use some system of credit-scoring. This means that for each fact about your application then points are either awarded or taken away. If your application reaches a set amount of points then your business loan is approved.
So the big question is, what is credit-scoring and how does it work?
By the way, if you don’t fancy reading then scroll to the end for the video instead…
If you have ever filled out a loan application then you will recognise these questions;
- Marital Status
- Are you a homeowner?
- Any dependents?
- Home phone number
- Job title
These questions are not random, they all serve a purpose. Let me enlighten you;
- Marital Status – About stability. If you are married you are more likely to be stable and have more ties. You are less likely to move quickly or run away. A single person could move at shorter notice
- Homeowner – If you own your own home then it means two things. That a mortgage company trusts you and that you are likely to stay in one place. In rented property you are more likely to move more often
- Dependents – Same as married. Children tie you to one place and lenders like that
- Home phone number – Not to contact you. If you have a home phone then it is another tie to your address, it also shows you are likely to remain at that address
- Job title – Senior Manager suggests trust and respect of employer. Manual unskilled worker suggests the opposite
Don’t Shoot The Credit-Scoring Messenger!
The above is factual, not my opinion! There are broad assumptions and sweeping conclusions, but you can see where credit-scoring is coming from.
The idea is that the system excludes race, creed, religon, hair colour, football allegiance or simple personality. So in theory it is fair.
The purpose of the post is to explain credit-scoring a little more, because nobody else does, especially the lender.
The Lincoln vs JFK Scenario
This is the analogy Lime Consultancy use for explaining the basics of credit scoring, the idea being the more you know the easier it is to get a business loan.
The video takes you through the analogy in an easy and entertaining way, I promise you that there are more similarities between Abraham Lincoln, JFK and credit-scoring then you will ever have realised!
Any comments then add them below or contact Lime Consultancy here.
By Dave Farmer