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The 4 Cs to Get that Loan Approved!

These are the things to consider when applying for a personal loan:

1. Character

2. Credit History

3. Capacity

4. Credit Score

Character defines who you are but the bank wouldn’t really have the time to establish a close and deep relationship with you over a long period of time to determine if would likely default on your loan or not. So mostly, it will be based on the information that you will provide them on your submitted application form as well as your public record.

Remember that an unsecured personal loan is non-collateralized therefore the risk is greater than that of a collateralized or mortgaged loan such as a housing loan. Ergo, the loan applicant’s character is one of the top considerations. This would include your credit history.

Credit history is a record of your past borrowings and repaying including late payments or non-payment. This becomes your credit reputation for your credit worthiness.

Lenders would normally run a check of your credit history during the first stage of the loan processing. If you run afoul during this critical stage, then you would likely not move up to the next level and your loan application would be declined outright. Since the Philippines has not yet established a credit bureau, lenders commonly rely on associations and organizations that collate data from member banks, financial institutions, utility providers, and public institutions. It works by reporting and sharing financial information by members. They match the name, address and other identifying information on the submitted application form with the information retained by their associations or organizations. This way, they can make accurate risk predictions to determine the loan applicant’s willingness to repay a debt.

The other factor in determining whether a lender will provide a consumer loan is dependent on income or capacity to pay of the loan applicant. The higher the income, all other things being equal (less all other expenses such as rental, income tax etc.), the more credit the consumer can access. However, lenders make credit granting decisions based on both ability to repay a debt (income) and willingness to repay (the credit report) as indicated in the past payment history.

Capacity to pay is determined by the documents you have submitted such as your latest ITR, pay slips, credit card billing statement, certificate of employment, utility billing statement and the likes. Lenders would conduct information verification to check the authenticity of the submitted documents that sometimes include telephone and field credit investigation (CI).

The first 3 Cs above (Character, Credit History and Capacity) mostly make up your Credit Score.

A Credit Score is a system generated scoring that lenders use to evaluate the potential risk posed by lending money to  loan applicants to mitigate losses due to bad debt. Lenders use credit scores to determine who qualifies for a loan, at what interest rate and how much loan to approve. Lenders also use credit scores to determine which customers are likely to bring in the most revenue which is called the preferred demographic profile.

So, keep in mind your 4 Cs! Always keep it Clean and Clear to get that Credit Aprroval!