11) CHECKING THE APPLICANT'S CREDIT STATUS

Question 1

What does the lender look for in financial statements

Answer 1

• *Bottom line balance on bank statements - whether surplus/deficit/fluctuations, and reasons
• *Regular inc - compare w appln and employer’s reference
• *Regular payments out - compare with appln form
• *Overdrafts - amts and frequencies
• *Returned chqs/failed direct debits - freq, amts
• *Maintenance payments - continuous/not
• *Mortg statements - regularity, outstanding arrears, fees/charges, and if info is consistent w that on appln form

Question 2

What info is not revealed by references and finanl statements/

Answer 2

• • • Pending court hearings
• • • Action for maintenance/child support claims
• • • Borrowings yet to be drawn down
• • • Cash transactions - undeclared inc/borrowings from family

Question 3

Credit searches

Answer 3

Credit searches show historical info reg specific indi’s acti and credit problems,
payday loans indicate inability to manage finances/budget - multiple cr searches may show up payday loans taken in the last 6 yrs, as just one search may not show it

Question 4

What factors feature in credit scoring?

Answer 4

Based on historical data relating to risk, with points allocated to each aspect of appln, and total score shd be more than a cut-off score for acceptance.
Factors taken into consideration are
*- age, *-income, *-occupation, *-existing commitments, *-credit search/conduct of loan accts with lender

In addn, previous experience w credit and its mgt is given importance

Sometimes a certain ‘borderline’ score may be referred for consideration - human element

Cr scoring is just a statistical tool, there is no single scoring model
Cr scoring is best appld whn - insti has well-dev database, it is built into a centralised processing sys eg telesales operation, deals with high vol of busi, and lending policy is well defined

Cr score orgns - Experian, Noddle, Callcredit

Question 5

Who is a guarantor, and

what are the two types of mortg guarantee?

Answer 5

A guarantor is an individual, a company or a partnership that provides a guarantee.
Also known as a surety. ie a formal agreement to accept legal responsibility for the repayment of a loan if the borrower cannot, or will not, repay it themselves.
1) Full guarantee - is liable to and demonstrate ability to guarantee at least 100% of mortg, in addn to their existing commitments
2) Limited liability - limited to diff betn amt lender agreeing to a sum and the amt actually needed, with a possible 10% more
(liability is shown as apercentage of the mortg)
UNLTD GUARANTEES ARE NOT PERMITTED

Question 6

What issues can render a guarantee invalid?

Answer 6

1. Lack of capacity to contract - minor
2. undue influence - domination
3. Misrepresentation - terms misrepresented to guarantor because of fraud, negligence, accident
4. Misapprehension - Guarantor under incorrect impression abt nature and effect of guarantee wh is diff to what they agreed
5. Mistake - guarantor can show they have not understood the nature of what they are signing
6. Duress - guarantor being forced, such as physical threats