The importance of character

The importance of character

Posted on Wednesday, July 18 2012 at 2:21 PM

Credit scoring agencies have come up with a way of calculating a borrower’s ‘debt character’ and their likelihood of repaying a loan, according to one expert.
Each lender has its own process for determining whether someone is a suitable candidate for a mortgage, according to Smartline Personal Mortgage Advisers executive director Joe Sirianni.

While the exact methods for making that determination are
closely guarded secrets, there are five areas that will most likely come into
play, he says.

Lenders will scrutinise your capacity to repay, your access
to capital, the availability of collateral, the conditions of the agreement and
your character.

“Assessing the first four is relatively straightforward,”
Sirianni says. “It’s your character that has always been a challenge for
lenders, as it’s difficult to measure your attitude.

“Lenders have always wanted the
ability to be able to accurately measure your intention to pay back their loan
and it appears they’ve now pretty much done it.”

For example, one agency rates character on a scale of zero
to 1200. Scoring 600 is passable, but might cause a bank to think twice about
approving your loan, he says.

How do you judge the character of a person? Lenders and
credit agencies won’t say. However Sirianni believes there are certain factors
that might cause a borrower to achieve a lower score. They include:

  • The
    number of times you’ve applied for credit (including mobile phone plans)
  • Whether
    you’ve defaulted or been made bankrupt
  • Your
    repayment conduct – i.e. if you’ve fallen behind on bills
  • How
    many different credit providers you’re using
  • The
    amount of credit you’ve sought.

“Every lender is different and no two appear to take the
same approach to credit scoring,” he says.

“It’s very true to say that one bank’s trash is another’s
treasure… some are reluctant to lend to some types of borrowers, others are
more than happy to lend to these customers.”

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