Lenders can give you access to credit — like a loan, credit card or car finance — which lets you borrow money now and repay it later. They decide whether to approve you, how much to lend, the repayment schedule and the interest rate. Understanding how lenders make decisions can help you prepare a stronger credit application.
A lender is an organisation or individual that provides you with credit. Examples include banks, car finance companies and mortgage providers. When you borrow, you agree to repay them under set conditions, usually with interest. Interest is the cost of borrowing — it’s calculated as a percentage of the amount you owe. The higher the percentage, the more money you’ll pay back.
A lender provides you with credit directly. A broker helps you find the right credit offer, but they don’t provide you with credit themselves.
Experian acts as a broker when we help you compare loans, credit cards, mortgages and car finance. We search a range of trusted lenders and show deals you’re more likely to get. Searching with us is free and won’t hurt your credit score.
Some brokers specialise in one particular product. For example, mortgage brokers specialise in – you guessed it – mortgages. They use their expertise to explain your options, search mortgage deals on your behalf, and guide you through the process. They can be very helpful as they know exactly what lenders are looking for. Just be aware they may charge fees or only use certain lenders.
Whether you’re applying for a loan or taking out a credit card, the lending process usually includes these steps:
Application
You’ll fill in a form with details about yourself and your financial situation — such as your full name, address history and income. Mortgage applications are more complex as lenders must meet stricter rules.
Document review
Lenders (especially mortgage lenders) may ask for proof of information, such as payslips, your passport and an employment contract.
Credit check
The lender does a detailed credit check by searching information on your credit report. They may use information from any or all of the UK’s three credit reference agencies, including Experian.
Decision
The lender considers all the information they have to decide if you meet their criteria. Reasons for being refused credit can include making an error on your application form, not earning enough, or having a low credit score.
Agreement
If you’re approved, the lender will ask you to sign a credit agreement. This sets out their terms — including the borrowing amount, repayment schedule, interest rate and fees, and your rights and responsibilities.
Lenders want to know that lending to you is an acceptable risk. In other words, they want to know how likely it is that you’ll pay them back. They’ll consider how you’ve handled credit in the past and whether you can afford to repay them. Each lender has their own view of risk and what they’re willing to accept. This means that some may say yes while others say no. Sometimes, they’ll agree to lend to you but lower their risk in other ways, such as by offering a lower amount or higher interest rate.
Lenders won’t tell you their acceptance criteria. But you can check your eligibility with Experian to see which offers you’re likely to get before you apply.
Lenders typically consider your credit history and income when deciding whether to give you credit. Some lenders (especially mortgage lenders) may also look at things like your deposit, monthly spending and employment history.
When you apply for credit, the lender is allowed to access information on your credit report to understand how you’ve handled credit in the past. They may also look at their own records if you’ve been a customer before.
Lenders typically look at your:
Current borrowing
They’ll take into account how much you currently owe, especially if it’s a large amount or you’re close to your credit limit.
Credit applications
If you’ve made lots of applications recently, lenders may think you’re in financial difficulty and be less likely to approve you.
Financial associations
You may have a financial association with another person if you applied for credit together, opened a joint bank account together or received a joint county court judgment. The other person’s credit history may affect the lender’s decision.
Payment history
A strong track record of on-time payments boosts your chances of acceptance, while late payments or debt management plans may count against you.
Public records
Things like county court judgments and bankruptcy signal to lenders that you’re a higher risk.
It’s worth building a credit history and trying to improve your score before applying for credit to boost your chances of approval.
Checking your income helps lenders understand if you can comfortably afford the repayments. A higher income may make you eligible for larger borrowing amounts. Mortgage lenders do particularly strict affordability checks, so they may also look at things like your monthly spending, savings and employment history.
Not all types of credit need a deposit — but it’s common with mortgages and car finance deals like hire purchase (HP) and personal contract purchase (PCP). A deposit is a lump of cash you pay upfront that covers part of the cost of the property, vehicle or whatever it is you’re borrowing for. Putting down a larger deposit may get you a better deal, such as a lower interest rate.
Lenders need to make sure the person who’s applying is really you. This helps them prevent identity theft. They typically ask for your:
The details you provide should match those on your credit report. Check your report is accurate and up to date, and register at your current address on the electoral roll. Being on the electoral roll helps lenders confirm your identity, and improves your credit score.
Yes. You don’t have just one credit score, though. Each lender scores you in their own way when you apply for credit. They normally use information from your credit report, your application and sometimes their own records to calculate your score. Lenders won’t share their score with you. However, the lender must tell you which credit reference agency provided your data if you ask them.
Lender scores are usually slightly different from the credit score Experian shows you. What your Experian Credit Score does is give you a good idea of how different lenders may view you.
Personal Finance Specialist
Your credit score helps you see how lenders will view your borrowing history, but it’s not the only thing they look at when you apply. Lenders may also look at things like your income, spending and deposit. Think of your score as part of a bigger picture.John Webb, Experian UK
When you apply for a mortgage, the lender must do strict checks to make sure a mortgage is right for you. To do this, they ask for details and evidence about things like your:
Identity – passport, driving licence
Address – utility bills, Council Tax bills
Income, spending and savings – pay slips, bank statements, P60
Employment history – dates and places of work, employment contracts
This information helps the lender understand if you can easily afford the repayments, even if there was a change such as retirement, parental leave or an interest rate rise.
Your mortgage provider will also need the details of your conveyancer (the legal professional who helps arrange the property sale).
Mortgage lenders want to see evidence of responsible borrowing, such as a history of on-time payments. They will also look at things like how much you currently owe. There’s not a single universal credit score number that guarantees a mortgage. Each lender has their own approach to assessing your suitability for a mortgage.
To apply for a mortgage when you’re self-employed, you may need to provide two or more years of accounts, SA302 forms or HMRC tax year overviews, and business bank statements. You may also need to supply projected income figures or proof of upcoming contracts. Company directors often need to show dividend payments or retained profits.
They check for regular income, consistent spending habits and evidence of savings. Bank statements help mortgage lenders understand if your deposit is coming from a legitimate source, helping them prevent money laundering.
How much you need for a house deposit varies, but most mortgage lenders require at least 5% of the property value. Generally, putting down a higher percentage will help you get a better deal, such as a lower interest rate.
Your income is a big factor, although not the only one. Mortgage lenders traditionally offer an amount between four and five times what you earn. Try our mortgage calculator to estimate what you could borrow. Remember, things like your credit history and deposit may also affect the mortgage you’re offered.
Lenders consider several things when setting their mortgage interest rates, like:
The base rate – this is the interest rate set by the Bank of England
Your deposit – paying a larger percentage of the property price up front can help you get a lower rate
Risk – lenders may give you a better rate if they think you’re a lower risk, so things like a high credit score or guarantor may help
Most mortgages start with a fixed rate for a set period. When this period ends, you’ll be put on the lender’s standard variable rate which can go up or down.
Lenders run a credit check for car finance applications, as well as looking at things like your earnings, monthly spending and current borrowing. Some car finance lenders may also ask about your employment history to understand if you have a stable income. All this information helps them decide whether you can afford the car finance you’ve applied for, and that you’re likely to make the monthly payments on time.
When deciding on a lender, compare more than just the interest rate. Consider:
Interest rates, fees and charges
Remember that low interest rates aren’t always better if the lender charges high fees. Looking at the annual percentage rate (APR) can help you compare the overall cost of borrowing. Just remember, things like late fees and early repayment charges aren’t included in the APR.
Customer support
It’s worth looking at independent reviews and customer service ratings.
Flexibility
For example, can you overpay or repay early without a penalty fee?
Security
You can check if the firm is on the FCA Financial Services Register and has permission for the service it’s offering you. You can also see whether it’s covered by the Financial Services Compensation Scheme (FSCS).
Bridging loans are short-term loans to ‘bridge’ a gap, for example if you’re buying a new home before selling your current one. Bridge lenders offer two main types:
Open bridging loans – there’s no set repayment date, although lenders usually expect repayment within a year. This type of bridging loan tends to be more flexible but more expensive.
Closed bridging loans – there’s a fixed repayment date, usually tied to an event, like a house sale. Typically, this type of bridging loan is cheaper but less flexible.
Subprime lenders specialise in lending to people with a ‘bad’ credit score. They typically offer lower amounts and more expensive rates.
Sub-prime lenders provide things like:
Retail lenders typically offer credit through shops and online retailers, such as buy now, pay later (BNPL) offers. BNPL schemes let you spread the cost of a purchase over time, often between 30 days and three months. If you miss a payment, late fees can quickly make them expensive.
Private lenders are individuals who lend money directly to other people or businesses. One common way to do this is through peer-to-peer lending sites.
To lend money legally in the UK, a lender must be authorised by the Financial Conduct Authority (FCA). This rule doesn’t apply to one-off loans between friends or family. Illegal lenders are called loan sharks and should be reported to Stop Loan Sharks.
Hard money loans are secured loans provided by private lenders who focus more on the security you’re providing — usually property — than on your credit history. They’re often used as a way to quickly finance a real estate investment. Hard lenders typically charge expensive rates and offer shorter terms, so you should be very careful about the risk you’re taking on.
A direct lender gives you a loan or credit themselves, without going through a broker or intermediary. This may be quicker and cheaper as you’ll deal with the decision maker directly and avoid any broker fees. But you might miss out on better deals or expert advice that a broker could offer.
Alternative lenders set themselves apart from traditional banks and providers. Examples include: