Before lending to you, or increasing your credit limit, a lender must make a reasonable assessment of whether you can afford to repay. The FCA calls this a creditworthiness assessment. The rules are now in its Consumer Credit sourcebook (CONC 5.2A, since November 2018; before that, CONC 5.2 and 5.3 from April 2014). Before April 2014, similar rules came from the Office of Fair Trading’s irresponsible lending guidance.
What the lender has to look at
- Your income, and whether it was likely to stay the same
- Your spending on essentials like rent, bills and food
- Your other debts and what you were already paying
- Your credit history, including missed payments and how much other credit you were using
Proportionate checks
The checks must be “proportionate”. A small first loan might need only basic checks. But the more you borrow, the more expensive the credit, and the more often you come back, the harder the lender should look, for example by checking your bank statements or verifying your income.
Just as important, the lender has to act on what the checks show. If your credit file showed you were already juggling several payday loans, or you were borrowing to repay borrowing, a lender who carried on lending may have lent irresponsibly.
Repeat borrowing
The Ombudsman looks closely at patterns. A long run of loans, loans getting bigger, or new loans straight after old ones can show you’d become reliant on credit, which the lender should have spotted, even if each loan looked affordable on its own.
What to do if you think the checks weren’t good enough
Complain to the lender. You can use our free complaint letter, or do our free check if you’d like a regulated firm to handle it.
Questions people ask
Is a credit check the same as an affordability check?
No. A credit check looks at your history. An affordability check should also look at whether you can afford this new borrowing now, given your income, spending and other debts.
Can a lender just take my word for my income?
For small, one-off amounts sometimes, but not always. The more you borrow and the more often you come back, the more a lender is expected to verify what you tell it.