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How does Defacto define my credit limit?
How does Defacto define my credit limit?

Everything you need to know about your financing capacity: calculation and reassessments

Christina avatar
Written by Christina
Updated over a week ago

What is a credit limit?

A financing capacity or credit limit is a fixed amount of money that can be borrowed as needed (in full or in part), repaid and then borrowed again in a revolving credit arrangement.

Unlike a line of credit, you only pay interest when you have financing in place. If you don't use your financing capacity, you pay nothing.

This limit is defined by our underwriting policy, detailed in the next section 👇

How is my credit limit calculated?

Defacto uses various sources of data to feed the underwriting algorithm in order to define the limit of your borrowing capacity.

In general, there are 4 levels of data that Defacto uses:

  • Public data based on the company's registration number or VAT number

  • Company financial data provided by the borrower through access to their bank account or financial tools in real time

  • Historical loan and repayment behaviours

  • Peripheral data, e.g. presence on social networks, sales pipelines, etc.

Defacto's algorithm needs at least 3 to 6 months' financial data in order to calculate a credit limit.

This initial credit limit will then be automatically reassessed at each repayment cycle to adjust the amount.

💡 How is a "cycle" calculated?

The first cycle begins when the borrower makes their first loan. The cycle ends when the loan that initiated the cycle is repaid. As soon as this first loan is repaid, the next loan triggers the second cycle.

All loans taken out before the first repayment date are part of the same cycle.

If you are not eligible for our credit products, the financing capacity amount is €0.

Can I refine my credit limit?

Defacto's algorithm automatically reviews credit limits on a regular basis, and increases or decreases the available amount depending on

  • recent financial data and global trends

  • repayment habits related to Defacto loans and on connected accounts.

Therefore, more financial data our algorithm can integrate, the more complete its analysis, and the better we can predict your credit limit.

You can now share this new data with us directly from your Defacto account!

To do this, simply:

  • select the tool/bank account you wish to connect

  • accept read-only data sharing

  • follow the identification process

During the next review, our algorithm will take these new elements into account to recalculate your financing capacity.

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