Credit Building > How to check your eligibility for a loan

How to check your eligibility for a loan

Wollit Team3 minute read · Updated 14th September 2024

Whenever you want to borrow money, you’ll need to make sure that you meet the requirements to get a loan. Here is how you can check if you qualify, what factors lenders look at, and how your credit score affects your chances.

What does it mean to qualify for a loan?

Qualifying for a loan means meeting the criteria that banks and other lenders use to decide if they will give you a loan. They look at your financial history, how you’ve handled debts before, your credit score, how much you earn, and other personal details.

Knowing if you qualify first can save you time and prevent hurting your credit score by applying for loans you may not get approved for.

Why is it important to check if I qualify for a loan?

Checking if you qualify before applying can help in a few ways:

It saves you time. If you don't qualify, you won't waste time applying for loans.
It protects your credit score. Each time you apply for a loan, the lender checks your credit. If you get rejected, it can lower your credit score a little bit. Checking first helps you avoid that.
It helps you find loans you're more likely to get approved for. By knowing what you qualify for, you can focus on applying for loans you have a good chance of getting.

How can I check if I qualify for a loan?

To check if you qualify for a loan before you actually apply for it, you can do a couple of things.

First, check your credit score.

This number is one of the most important things lenders look at, since it’s meant to show how good you are at borrowing and paying back money. The higher your score, the better.

Each credit reference agency has its own credit score system, so you might want to check with all three. You can do it for free by creating an account with Experian, ClearScore (for your Equifax score), and Credit Karma (for your TransUnion score). This will give you an idea of where you stand.

Second, use a loan eligibility checker.

Many websites where you can compare loans or credit cards have free tools called "loan eligibility checkers." You type in some information about yourself, and the tool will tell you if you likely qualify for a loan without hurting your credit score.

Some of the most popular loan eligibility checkers include: Compare the Market, MoneySuperMarket, MoneySavingExpert. Experian, Credit Karma, or ClearScore also offer this.

Third, try to understand the lender’s requirements.

Different lenders have their own specific requirements for who they will give loans to. Before applying, review the criteria to make sure you meet them.

Common requirements include things like:

Your minimum income level;
The type of job you have;
Your credit history (no history of bankruptcy, for example);
Or how long you've lived in the UK.

Finally, different lenders will accept different levels of existing debt, so try to understand this as well.

For example:

Your existing debt-to-income ratio: how much your monthly debt repayments are compared to how much you earn.
Your potential debt-to-income ratio: how much your monthly debt repayments will be, compared to how much you earn, if you would get approved.
Your loan-to-value ratio: this applies for mortgages, and it means how big your deposit is compared to the whole mortgage.

Once you've checked if you qualify, compare different loan offers. Look at things like:

Interest rates;
How long you have to pay the loan back;
Any fees or extra charges;
And how flexible the repayment terms are. Sometimes you can save quite a bit by repaying a loan early, but often lenders charge extra for this.

How does my credit score affect my chances of getting a loan?

Your credit score is one of the biggest factors in whether you'll get approved for a loan and what interest rate you'll get. Lenders use it to judge how risky it is to lend to you.

A higher credit score means you're more likely to:

Get approved for a loan;
Get a lower interest rate;
And overall get better terms on the loan.

A lower credit score can lead to getting rejected, being offered a higher interest rate, or not being able to borrow as much money.

If your credit score needs some work, here are some tips to help improve it:

Pay all your bills on time. Late payments can really hurt your score.
Pay down credit card balances and other debts. Carrying a lot of debt makes you look riskier.
Avoid applying for a lot of new credit at once. Multiple applications in a short time can lower your score.
Check your credit report for any errors and dispute them. Mistakes on your report can negatively impact your score.
Addressing negative marks on your credit file by adding a “Notice of Correction”. This is a 200-word short note that you can use to explain why something bad happened. While it won’t change your credit score, it can give lenders some context. They might understand if, for example, you missed a payment because you lost your job.

However, by far the most effective thing you can do to improve your credit score is to build your credit history.

The good news is that there are many ways to improve your credit score. One of the best ones is to sign up to a specialised credit-building subscription, like Wollit.

Wollit works by reporting a fixed-fee monthly subscription as a loan repayment to all three credit reference agencies. This builds your credit history and helps you improve your credit score.

Eventually, a better credit history will increase your approval chances – not only for loans, but also for other financial products, like current accounts with generous overdraft, credit cards with long 0% interest periods, and low deposit mortgages.