Credit scores and total income

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Credit Scores and total income – why both are important when applying for a personal loan


Whether you’re a young adult moving into your first place, or you’re a little older and perhaps even have an eye on an impending empty nest, sometimes financial issues can feel like they make little sense.

When looking for a personal loan, it’s easy to fall into the trap of thinking either:

  • “My credit score is excellent, so I can definitely get a loan.”
  • “My income means I can easily afford the repayments, even on a larger personal loan.”

Then, you check your personal loan eligibility or apply for a loan outright and are shocked when you find out you’ve been declined.

What went wrong?

Well, the truth is that your credit score – and your more comprehensive credit history – plus your income work together to determine whether you can get a loan.


Why your credit score matters


Lenders can use your credit score to learn a little about how reliable you are with money and predict your future behaviour. With this information, lenders can assess how much risk you pose as a borrower. Then, depending on their policies and whether you’re eligible for a loan, lenders might offer you an interest rate that reflects your credit score.

Some lenders might look at your credit file to check things like your previous debt exposure, your existing debt, and any recent credit applications you’ve made.

Your credit score generally reflects your financial behaviour across these and other factors. Yet, lenders checking your credit file can paint a fuller and more accurate picture of your financial situation.


Why your income matters


Lenders must ensure that any new borrowing you take on is affordable.

Suppose your household income is $8,000 per month, but after expenses, you’re only left with $1,000 a month. In that case, a responsible lender wouldn’t accept a loan application that would lead to you needing to repay $250 a week!


Which is more important?


Both your credit score and your income are equally important, and it’s worth ensuring both are in good shape before you apply for a personal loan.

The worst thing you could do is neglect correcting errors on your credit file or doing what you need to do to improve your credit score on the basis your income makes a loan affordable!


Remember! Not all lenders are the same


Each lender has its own lending and credit policies. Of course, while you can read anecdotes and hunches on finance forums, you don’t know what these are as a consumer. For example, some lenders may only provide loans to people in a certain income bracket or whose credit scores are above a certain level.

However, you shouldn’t blindly apply for loans until you find a lender that accepts you!

Repeated applications can be disastrous for your credit score and be a significant red flag to lenders. Such behaviour can make you appear desperate for credit and give the impression you’re in financial strife, which is unlikely to inspire confidence in you as a borrower.

Depending on the lender, both your credit score and overall financial circumstances might affect the interest rate you get, in addition to how much you can borrow. Different lenders may put different weightings on the importance of you having a specific credit score or your affordability.

Instead of leaving things to chance, seek out a lender that offers you flexibility around things like your loan amount and term, loan types, and the ability to work out your affordability and get your rate before applying.


Work out your monthly payments and get your rate!


Here at NOW Finance, we offer a range of loan types and make it easy for you to work out whether a personal loan is affordable.

To understand what your monthly repayments would be, use our repayment calculator. All our loans are no-fee, meaning your interest rate and comparison rate will always be the same, reducing your repayments or potentially giving you the capacity for higher borrowing! When you’re happy you can afford a NOW Finance personal loan, you can check your eligibility and get your rate here.

Get your rate with a lender you can trust today!

Disclaimer:  This article contains general comments and recommendations only.  This article has been prepared without taking account of your objectives, financial situation or needs.  Before taking any action you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.

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