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Debt: How it can affect your borrowing options

An article by Lucy Burgess for ClearScore

This article explains how to become an eligible suitor to banks and lenders.





When lenders are working out your eligibility for a loan, they take into account your existing debt levels.


Firstly, they look at your credit utilisation. Your credit utilisation is the amount of your total credit limit that you actually use - ideally, this should be below 30%.


They also look at your debt to income ratio, which is how much debt you have compared to your salary. This impacts your eligibility, particularly when you apply for a mortgage. So managing your debt can make all the difference when it comes to applying for credit.


Stable, reliable, with a good debt-to-income ratio. If this sounds like your perfect partner, you have that in common with banks and lenders.


When you apply for a loan or other credit product, the lender has to decide whether or not to lend to you. Lenders look for certain signs to help them decide what risk you pose as a borrower. The more signs that you’re a safe bet, the higher your eligibility for credit.

On ClearScore, we show you your live eligibility score for many of your offers. We show this next to your offer, displayed as a percentage. So if you see ’90%’ next to a product, this means you have a 90% chance of being accepted. We calculate your eligibility score based on the latest information so you can be sure it’s accurate.

But what if you see a great loan or credit card offer but your eligibility score is too low? Find out what that means and how you can increase your eligibility to get the product you want.


How we calculate your eligibility


Your eligibility scores on ClearScore are calculated by banks and lenders based on their own criteria. Most lenders look at two things in particular: your credit report and your affordability (whether you can afford to take out credit).

When you browse your offers on ClearScore, banks and lenders send us live eligibility scores based on your current information. This means we can show you fresh results and eligibility scores every time you check your offers.

Sometimes, you might be ‘pre-approved’ for an offer. This means that the lender has told us that as long as you pass their fraud checks and provide correct information on your application, you will get that product.*


How to improve your eligibility


There are two simple ways you can improve your eligibility and become a highly desirable applicant.

Firstly, boost your credit score by working on your credit report. Secondly, show that you can afford the credit (improve your affordability).


1. Keep an eye on your credit report


As your credit report holds a lot of importance in the eyes of lenders, it’s worth checking your report regularly and giving your score a boost.


  • Make sure everything’s accurate


Check your report thoroughly to make sure it’s a fair reflection of you. In particular, check your repayment history is accurate, any debts that you’ve settled are shown as ‘paid’ and that there are no ‘searches’ you don’t recognise. If anything looks incorrect, raise a dispute through ClearScore.


  • Take out a credit builder card


If your credit score is lower than you’d like, and you’ve got some time before you need to apply for credit, consider taking out a credit builder card. By spending small amounts on it and paying it back in full every month, you’ll build up a good track record of payments which lenders love to see.


  • Lower your credit utilisation


In your ClearScore account, take a look at how much of your credit limit you’re using. Anything below 30% signals great credit management and that you’re not overly reliant on borrowing. If your utilisation is higher than 30%, there are many ways you can lower it.


  • Get on the electoral roll


If you’re on the electoral roll - which means you’re registered to vote - lenders find it easier to verify who you are and where you’re living. And if you’ve been at the same address for a while, lenders will view you as lower risk. (We know this seems unfair. But even if you do move around a lot, the main thing is to keep a good repayment history.)



  • Don’t close old credit accounts


Lenders like to see that you’ve got at least one credit account that you’ve used for a few years. This is because it shows that you’re trustworthy and capable of building a stable relationship with your creditor.


  • Keep a steady level of borrowing


If your debt levels are going up and down dramatically, or if you’ve been applying for lots of credit in a short period of time, this may be taken as a sign that your financial position isn’t very stable.

Read our article on the factors that affect your credit score to learn more.


2. Work on your affordability


Lenders like to know that you’ll be able afford your monthly payments. To do this, they look at your income-to-debt ratio, which is the difference between your income and your debt payments.

To work out your debt-to-income ratio, divide your total monthly debt payments by your gross monthly income. For example, let’s say you make £2,500 a month and you pay £250 each month on student loans and £250 per month on car finance, making a total of £500. £500 divided by £2,500 is 0.20, so your debt-to-income ratio is 20%.

To lower your debt-to-income ratio, see if you can increase the amount you pay monthly towards your debt. Extra payments can help lower your overall debt more quickly. You could also consider postponing any big purchases and instead look at paying down your debts.

Obviously, lenders will also be looking at how much you earn. So, the best time to apply for a loan is when you have a consistent income and are living within your means.


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