Creditors take a look at how much you’re spending each month on credit commitments. If this is too high they may reject your loan application.
This is known as the ‘monthly debt ratio’ and relates to the ratio of monthly payments on accounts to monthly income. In other words how much of your income is being used to pay creditors each month?
For example, Alice earns £1,500 each month. They spend £500 on repaying loans and other credit agreements. This is a ratio of 33% (£500 / £1,500).
Tip: Try and ensure that your monthly payments are less than 25% of your take home pay.