Clients often ask bond originators to explain why their bond applications are declined, or why a bank will not give them the amount they requested, and makes them a lower offer, says Rob Lawrence, national manager of Rawson Finance.
They also ask originators to explain the terminology the banks use, such as ‘scorecard decline’ or ‘poor credit profile’.
Two main sets of data go into the assessments of applicants looking for bonds on residential property, says Lawrence.
“First, the applicant’s credit profile or track record as a payer on accounts will be investigated. Each applicant’s behavioural pattern will then be scored against a number of set criteria designed to give a picture of his lifestyle and steadiness. The banks will use this to ‘score’ his lifestyle risk.
“If, for example, he has lived in his home for over three years that would be seen as a plus factor. If he has a landline telephone, that is also considered good. If he has been in the same job for more than two years, the banks see this as an indication of stability and creditworthiness.
“These and other factors are fed into the bank’s rating system and can easily result in the applicant being turned away when he is in fact a good credit risk. It is, therefore important for the applicant to talk to a bond originator who can present his case in a favourable light.
“For example, the applicant may have had a promotional transfer, hence the reason for his being in a home only a few months. Or his previous firm, through no fault of his, may have been liquidated or merged, forcing him to find a new job.
“The electronic system does not give explanations – it is purely a scorecard – but a good bond originator will show the bank the other side of the story – if there is one.”
He says applicants often think that if they reduce the size of the bond they are asking for they will have a better chance of success, but if the scorecard behavioural findings are negative they will disqualify the applicant whatever the size of the bond request.
On the accounts side, says Lawrence, it is essential to show that no payments have been missed – and to bear in mind that banks have access to credit data on all previous bonds, overdrafts, store accounts, cellphone and telephone accounts and much else.
“The banks use this information to evaluate a client’s payment profile – to discover if he is a good or bad payer, and no bank will want to lend money to a bad payer.”
Lawrence says if applicants try to hide payment defaults, this will be discovered – and it will prejudice their chances and could well cause the bank to decline the application, or make the applicant a much lower offer.
“A client may have had a very good reason for going into arrears, for instance he might have run up accounts due to a divorce or have high medical bills. A good originator can motivate for a bank to reconsider a credit profile decline, if there is sufficient reason to do so.
“However, where credit records are not “squeaky clean” and the issue is the credit profile (accounts not paid regularly), our team’s advice to bond applicants is to clean up all credit accounts, for at least the next six months, after which it will be possible to show the banks a positive payment profile and then re-apply for a bond,” says Lawrence.
