In order to determine a borrower's creditworthiness a lender will check a borrower’s credit history to better understand whether the borrower has a track record of repaying their debts.
The Credit History of a borrower is an important factor when considering whether to provide a bridging loan. Bridging loans are short-term loan facilities used to finance a purchase until longer-term financing is arranged. They are typically used when buying a property, as the loan can be repaid when the property is sold or refinanced. Credit History is a determining factor in the decision to grant a bridging loan, as lenders want to ensure that the borrower has a good track record of repayment.
This guide will look at how Credit History is assessed in relation to bridging loans, the importance of the Credit History attribute for potential bridging loan applicants, and the implications if the Credit History is not up to standard.
Credit History refers to a borrower’s history of paying back debts.
It is typically recorded on the individual’s credit report, and includes information such as the type and amount of loans they have taken out, as well as whether they have missed payments or defaulted on them in the past.
When assessing potential bridging loan applicants, lenders will review their Credit History in order to gain an understanding of the borrower’s level of financial responsibility. A borrower with a good Credit History – i.e. one with a consistent repayment record and no defaults or missed payments – is more likely to be approved for a bridging loan than someone with no credit history or a bad Credit History.
A lender may consider additional information beyond the Credit History to assess a borrower’s suitability for a bridging loan. For example, they may look at the amount of debt the borrower has already accumulated, their income and their assets.
The Credit History of a potential bridging loan applicant is very important, as it gives a lender an indication of the borrower’s financial responsibility and ability to repay the loan. If the Credit History of a borrower is poor, then this may raise a red flag for lenders, as the borrower has not demonstrated that they can manage their debts and make payments on time. This may lead to the lender rejecting the application.
On the other hand, a borrower with a good Credit History is likely to be viewed in a more favourable light. Such a borrower has demonstrated an ability to repay their debts and manage their finances, and is therefore deemed to be a lower-risk borrower.
If a borrower has a poor Credit History, this may have implications for their ability to secure a bridging loan.
The lender may request further information to determine the borrower’s suitability before making a decision, or they may simply reject the application outright.
In addition, a borrower with a poor Credit History may be offered a bridging loan with higher interest rates or other unfavourable terms. This is because the lender will view the borrower as higher risk, and will want to protect themselves by charging more for the loan.
Credit History is an important entity attribute value when considering potential bridging loan applicants.
A borrower with a good Credit History is likely to be viewed in a more favourable light by lenders, while a borrower with a poor Credit History may find it more difficult to secure a loan, or may be offered a loan with unfavourable terms.
It is therefore essential that potential bridging loan applicants ensure that their Credit History is up to date and without any adverse credit, in order to maximise their chance of securing a loan.