How do credit checks work?

I am considering a loan to a person who doesn't have credit and isn't eligible to get a loan from a bank.

How does the logic of credit checks work? At least, I hope to validate some basics.

  • Do you know this person? Are you going through a micro-lender platform? Is there any collateral? – mhoran_psprep Feb 25 '18 at 12:41
  • I know the person for over 8 years. I am not aware of Micro Lender Platform. If you could suggest one that would be helpful. – goofyui Feb 25 '18 at 19:18

The general things that would cause someone not to be eligible to get a loan from credit cards or banks would be:

  1. He/She got a loan in the past and didn't pay it.

  2. He/She signed a contract with some kind of service and didn't pay it (maybe he cancelled a course, but had to pay a quitting fee and didn't)

  3. He/She recently contracted some kind of debt or obligation that became beyond his payment capabilities (financed a house then lost his job but still didn't stop paying).

  4. He/She created lots of different credit cards recently (and not necessarily started spending on them).

My advice for doing a personal loan would be:

  1. Make a contract with said person, make it formal!

  2. Ask for some interest (say 0,1% a year plus inflation).

  3. Allow a very large time for the person to pay back in the contract (he/she said he/she'll pay it in 2 months? Let the contract say he can pay up any time in two years).

  4. Do not actually expect to see the money ever again, so lend only what you're sure you can waste.

  5. If you can't really afford to lose money but the person really needs it, ask for some collateral (Like: Would you mind if I borrowed your iPad until you return my money?)

Good luck

  • thank you so much.. is there a website or middle platform where we can have the promise note tied between lender and borrower – goofyui Feb 25 '18 at 4:05
  • You're very welcome. I don't know any platforms for that, but a contract should suffice. If this person is far away from you, you could ask him/her to print a contract and send by mail. Once you have both copies signed by him, you're safe. But in this case specify that the transaction to lend the money has to be done by a wire transfer, so that both of you can use a banking history for proof. – Mefitico Feb 26 '18 at 1:47

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