Pay off loans, give your cards back, take care of your Retrodatabase history and demonstrate income stability if you don’t have a full-time job – we suggest what to do to improve your credit standing before taking out a loan for an apartment.
When examining the loan application, the bank checks the creditworthiness of the potential customer. On its basis, it is able to assess how high the monthly installment will be borne by the borrower. In simple terms, it can be assumed that for this purpose the lender compares the client’s income with his fixed monthly expenses. The expenses are not only installments of other loans, but also the costs of maintaining a family, apartment or car.
In addition to income, a customer’s credit history, age, form of employment or the size of the city where he lives have a significant impact on the customer’s creditworthiness. We have no influence on some of these parameters, but thanks to others we can improve our own credit standing.
Below are some tips that will help improve our credibility in the eyes of the bank.
1. Cancel your credit card, limit the limit in ROR
Start with cleaning up your home finances. If you don’t need a credit card, return it to the bank. Even if you use it sporadically, the limit granted to you will be taken into account when testing your creditworthiness. The bank assumes that you can use the card at any time and take additional credit. The same advice applies to the personal account limit. If you feel safe with it, think about whether you could lower it a bit.
2. Make order with loans
If you repay a holiday or car loan, you must remember that the bank will consider the installment as a permanent burden on your household budget. Half poverty, if these are the last installments of a loan repaid for two or three years – the bank can turn a blind eye to them. However, if you plan to take out a home loan, refrain from replacing your car or financing holidays with money from the bank. If you have no choice, consider a small loan from a family.
3. Ensure a good history at Retrodatabase
The Credit Information Bureau collects, among others data on loans repaid on time. For this reason, it is worth taking a small loan from time to time and paying it back conscientiously – it is good for the borrower’s credibility. The lack of any credit history does not have to be read positively. You can be sure that the bank will look into the data in Retrodatabase before it grants the loan.
Before you start looking for a loan for an apartment, check on your own what the Retrodatabase reports say about you. It may turn out that the database has outdated or incorrect data that needs to be corrected.
4. Extend the loan period
The longer the loan, the more interest the bank will collect. This rule applies to all types of loans. On the other hand, a longer loan allows you to significantly reduce the monthly installment, which directly affects your creditworthiness. By extending the loan repayment period, we can apply for more funds. There is also no obstacle to repay the loan earlier if we get additional funds.
5. Take a loan with your family
To increase your credit standing, you can take out a debt with your parents in the bank. They will not be entered in the land and mortgage register as property owners, but they will still provide additional security for the bank. However, the age of the parents must be taken into account – in some cases it may shorten the maximum loan period. Not only parents can be co-borrowers – it can be anyone, e.g. a brother or sister.
6. Establish additional credit collateral
Parents can help in another way – agree that their apartment will provide additional collateral for the loan. This will allow you to take higher loans and negotiate a better interest rate. This is because it depends on the LTV ratio, i.e. the ratio of the loan amount to the value of the property.
7. Choose equal installments
The type of loan installments also affects the creditworthiness. Equal principal and interest installments mean higher loan costs, but they perform better when determining creditworthiness. Installments decreasing in the initial period are much higher and will negatively affect creditworthiness. It is these first months that the bank will take into account when making calculations.
8. Choose the currency of the loan
The currency of the loan will also affect your creditworthiness. If you want to take out a loan in a foreign currency, you will have to prove your creditworthiness 20% higher than for the same loan in PLN. This is a requirement introduced by financial supervision that banks must comply with.
9. Document income continuity
Banks are kindly looking at people earning income from an employment contract. The risk group includes clients who work in the form of a work contract or self-employment. But this does not mean that they are doomed to failure. If they’ve been doing this for years and can document income stability, the bank will take this into account. An advantage for a person running a business in the form of self-employment can be, for example, a cooperation agreement with a contractor for an indefinite period.
Micro-entrepreneurs may have problems with operating costs. While it is preferable to show losses for tax reasons, this prevents you from documenting your earnings later. When assessing creditworthiness, the bank will take into account the entrepreneur’s annual tax return.