The Key Factor Martin Lewis Reveals for Loan Approval Beyond Credit Scores

Martin Lewis joined ITV’s This Morning to discuss how credit ratings work, debunking the misconception that they are the most important factor when applying for a loan.

A viewer faced rejection for a mortgage despite having a perfect credit score. Martin Lewis emphasized that lenders prioritize a person's income over their credit score when considering loan applications.

"We just have to get away from being hung up too much about credit scores," Lewis advised. He explained that having no income, even with a great credit score, would make it difficult to obtain a loan as the borrower would be unable to repay it.

A credit score is a numerical representation of an individual's creditworthiness. It indicates to lenders the risk of lending money to a specific borrower. A higher credit score increases the chances of loan approval, better credit terms, and lower interest rates.

According to the Lloyds Bank, a lower credit score suggests limited financial management experience or previous mistakes, which can make an individual a higher risk for lenders. However, credit scores can vary depending on the credit reference agency.

It's essential to understand that credit scores serve as a guideline for lenders rather than an absolute measure. Other factors, such as income and affordability, play a significant role in loan approval.

Martin Lewis highlighted that having an excellent credit score without a job or income can still make it challenging to obtain credit. "It is going to make getting credit much more difficult," he cautioned.

Specialist bank Shawbrook confirms that loan rejections can occur even with a good credit score. Factors such as inability to repay, self-employment, irregular income, or inaccurate credit information can impact loan approval.

Martin Lewis advised the viewer to check her credit reference files from different agencies for any errors, such as outdated addresses. He emphasized that credit scoring is only one part of the equation, and affordability scoring, based on income, is equally important.