Whether you’re applying for a loan, credit card mortgage or bank account, the chances are you’ll encounter the word criteria.

You may notice it being used in sentences like:

“To be eligible for this credit product, you must meet our lending criteria”

In simple terms, criteria is a standard by which something is judged upon.

What does this mean in finance terms?

When we’re discussing loans, lenders will have applicant criteria which each applicant must meet to be approved for the loan.

With guarantor loans, there will also be some guarantor criteria which they must meet to be approved as a guarantor.

Each lender will have a different set of criteria, depending on the product they are offering.

A bank will have very different criteria to a guarantor loan lender. Equally, a mortgage provider will have different criteria to a credit card provider.

What makes up a lenders criteria?

There are several things that will make up a company’s criteria. These could include:

  • Residency status – Secured loan lenders will require applicants to be homeowners, whereas unsecured lenders will accept tenants. Some lenders may also require you to be registered to vote at your current address.
  • Income type and amount – Some lenders may require you to be in full or part-time employment where you receive a steady source of income. Some may have a minimum gross salary amount which applicants must meet to be approved.
  • Age – Typically, all lenders will require applicants to be over the age of 18, for some, 21 may be the minimum age. Some lenders may also have a maximum age criterion too.
  • Income vs expenditure ratio – As part of their process, companies may assess the affordability of a loan based on the applicant’s income-to-expenditure ratio. For this, applicant’s outgoings must not exceed a certain percentage of their income to be approved.
  • Credit history – It is very common for a lender to carry out a credit check as part of their process. Some lender’s may require the applicant’s credit score to exceed a certain value for them to approve the loan. Others may look at the credit report as a whole and assess each case on it’s merit.

It’s important to remember that every lender’s criteria will be different. Just because you’ve been approved for one credit product, it doesn’t mean you’ll get approved for another, even if its from the same company.

Who assesses applicants against the criteria?

It is the job of an underwriter to assess each applicant against their lending criteria, although many companies will now automate large portions of the process. Even still, the underwriter will usually need to carry out security phone calls with the applicant to ensure that they are fully happy and comfortable with the agreement they are entering.

Before you start an application, the provider will usually give you a brief overview of their criteria. It is in your best interest to take notice of this and make sure you meet it. Failing to do so could lead to your loan application being rejected which can negatively affect your credit score.

So, make sure you spend some time assessing yourself against a lender’s criteria prior to applying for a loan. If you’re ever unsure on anything, don’t hesitate to give them a call them, they’ll be more than happy to help you out.

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