Behind every loan granted or refused there is an assessment process in which the bank has studied our profile as a customer, that is, our ability to repay the money it is going to lend us. This process is far from arbitrary and involves assessing numerous parameters that make the customer a better or a worse payer. It, therefore, determines the risk of default that the banking institution is going to assume when granting that loan.
So, in order to know what risk is involved in lending money to a certain customer, the majority of banks in Spain use credit scoring, a system that measures a series of objective parameters and assigns each person a score which helps the bank to decide whether or not to grant the loan and, sometimes, also determines the interest rate associated with that loan.
As a customer, it is, therefore, worth knowing what banks look for in a ‘good payer’ and how this evaluation system works.
Credit scoring is a system that is based on statistics to try to determine our payment capacity based on our personal and financial details and, very importantly, on the basis of the payment history of customers with a similar profile to our own. What information is credit scoring based on exactly? Let’s point out the most common ones:
For example, when we request a loan of €10,000 from our bank, the bank usually uses a scoring system to check how other customers with a similar profile to ours (income, assets, employment, etc.) have responded to the loan. This way, the bank can know in advance what has happened in loans that involved sums of money and customer profiles that are similar to our case.
Of course, every customer is different, which is why the case history of payments we have also played an important part in credit scoring. If we are up to date with our debts and every time we have requested a loan we have repaid it without any incidents, this will have a favorable impact on our credit scoring. On the contrary, if we have a case history full of late payments and we still have outstanding debts, this will work against us.
In any case, the result of the credit score that is associated with us as customers only determine the probability of us repaying the loan, hence this score is simply another element that the bank can use in deciding whether or not to grant us the loan.
Therefore, on the basis of our credit score, the bank may grant us the loan, refuse it or, in some cases, ask for more repayment guarantees and increase the requirements for obtaining that loan. And this is where the negotiation of the loan comes into play since if the banking institution is not entirely sure about our capacity to repay the amount of money we are requesting, it can require us to present a guarantor who is responsible for covering us in the event of non-payment. Moreover, in profiles with a credit score that is not so good, the interest charges associated with the loan are usually higher (remember, the higher the risk, the higher the interest).
Obtaining a good credit score is not something you can achieve overnight. Besides our employment and income, to improve our credit score it is essential to be rigorous with payments and to present a customer case history that is as serious as possible.
Needless to say that if we are included in a defaults file, our credit score will be very low and we will have serious difficulty obtaining a loan.
Last, of all, it is important to emphasize that our credit score will not mean that the credit is granted or refused automatically, but it will be an important factor that the bank will weigh up when deciding whether or not to give us that money we need.
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