The topic of credit history and loan approvals frequently appears in IELTS Writing Task 2, particularly in essays discussing financial systems, banking, or personal finance. Based on analysis of past IELTS exams, this theme has appeared in various forms over the last five years, making it a highly relevant topic for test preparation.
importance of credit history for loans has become increasingly significant in modern banking systems, making it a crucial topic for IELTS candidates to understand and discuss.
Let’s examine one common question type that has appeared in recent tests:
Some people believe that banks should only consider an individual’s current income when deciding on loan approval, while others argue that credit history is more important. Discuss both views and give your opinion.
Analysis of the Question
This question requires:
- Discussion of two contrasting views about loan approval criteria
- Clear presentation of arguments for both positions
- Personal opinion with supporting examples
- Balanced analysis of the topic
Credit history versus current income in bank loan approval process
Sample Essay 1 (Band 8.5)
The debate over whether banks should prioritize current income or credit history in loan approval decisions is particularly relevant in today’s financial landscape. While both factors have their merits, I believe a combination of both elements, with greater emphasis on credit history, provides the most reliable basis for loan decisions.
Those who advocate for current income-based assessments argue that present earning capacity is the most reliable indicator of loan repayment ability. They contend that a stable, high income demonstrates immediate financial capability and reduces default risks. For instance, a software engineer earning $100,000 annually might appear to be a safer choice for loan approval than a small business owner with fluctuating income.
However, impact of debt-to-income ratio on loans shows that credit history offers a more comprehensive view of financial responsibility. Past payment behavior typically predicts future financial conduct more accurately than current income alone. A person with modest earnings but an impeccable credit history often proves more reliable than a high-income individual with a record of missed payments.
Furthermore, credit history reveals crucial patterns in financial management. It demonstrates long-term financial discipline, responsibility, and the ability to handle multiple financial obligations simultaneously. For example, someone who has consistently met smaller loan payments over several years shows better financial management skills than someone who simply has a high salary but no credit history.
In my opinion, while current income is undoubtedly important, credit history should carry more weight in loan approval decisions. This approach provides a more holistic view of an applicant’s financial behavior and reliability. Banks can better assess risk by examining both factors, with particular attention to credit history patterns.
Sample Essay 2 (Band 6.5)
Nowadays, banks need to decide what information they should look at when giving loans to people. Some people think current income is the most important thing, but others say credit history matters more. I will discuss both sides and give my opinion.
People who support looking at current income have some good points. First, if someone has a good job with high salary, they can probably pay back their loan easily. Also, banks can see exactly how much money the person makes right now, which makes it easier to calculate if they can afford the loan payments.
On the other hand, loan approval process and credit history supporters say past behavior is more important. They think that how someone handled money before shows if they are responsible or not. For example, if someone always paid their bills on time before, they will probably continue doing this even if they don’t make lots of money.
I think both things are important, but credit history is more important. This is because it shows how people actually handle their money over time, not just how much they make. Also, some people with high incomes still don’t pay their bills on time, which is a problem for banks.
Key Vocabulary
- Credit history (n) /ˈkredɪt ˈhɪstəri/ – record of previous borrowing and repayment
- Default risk (n) /dɪˈfɔːlt rɪsk/ – possibility of failing to repay a loan
- Financial discipline (n) /faɪˈnænʃəl ˈdɪsəplɪn/ – ability to control spending and saving
- Creditworthiness (n) /ˈkredɪtwɜːðinəs/ – how suitable someone is to receive financial credit
- Loan approval (n) /ləʊn əˈpruːvəl/ – process of accepting a loan application
credit scores and loan approvals are crucial concepts that IELTS candidates should be familiar with when discussing financial topics.
For practice, try writing your own essay on this topic and share it in the comments section. Consider these alternative questions:
- Should banks require both good credit history and high income for loan approval?
- How important is financial education in maintaining good credit history?
