Sign In/Sign UpTRENDING BASIC MONEY MANAGEMENT TIPS
TRENDING BASIC MONEY MANAGEMENT TIPS
10.02.2020 / Borrowing « Back to all articles
Applying for a Loan, What Lenders Review
If you've ever considered applying for a loan, you've likely found yourself wondering how exactly lenders decide on your creditworthiness. You may know that they check your credit score, but that only adds mystery if you're unsure what makes up this rating. To help demystify the process and make your loan application process more transparent, let's look at what lenders examine on your credit report.
Payment History
The basic definition of creditworthiness is the ability to pay back your loan. One of the best ways to state your ability to pay back your loan is a history of on-time payments. Because of its importance, payment history makes up 35% of your FICO credit score.
A late payment or two may be understandable, depending on the circumstances, although it will likely mean you're offered a higher interest rate or lower loan amount. A history of repeated late or missed payments, especially if they caused you to default on a loan or declare bankruptcy, makes it easy for a lender to deny you a loan.
Current Debt
Your current debt loan comprises 30% of your FICO score. That means the more debt you have, the less likely you are to be approved for a loan.
This is why many financial counselors recommend applying for lines of credit and credit cards when you don’t need them. By the time you’ve hit a financial emergency, your credit may not be in good enough shape to be considered worthy of more credit.
Credit History
Credit history is formed of two parts, each making up a different percentage of your overall FICO score. The length of your credit history, basically the age of your oldest account and the average age of your current accounts, is 15% of your score.
The other aspect of credit history is the type of credit used. It’s better to have a diverse line-up of credit accounts, from revolving credit (like credit cards or lines of credit) to installment loans (such as car loans) to property-backed loans (that is, mortgages). This mix of credit lines is 10% of your FICO score.
Credit Checks
If you’re doing the math, you know we have about 10% of your FICO score unaccounted for. That’s where credit checks and new accounts come in. If you’ve recently opened several credit lines, lenders will be less likely to loan to you as this behavior is associated with rising debt levels. Unless necessary, it’s best not to apply for multiple new credit lines in a brief period.
Other Factors
Your FICO score isn’t the sole consideration for the approval of a loan. Factors like income, your employment history, and your current checking or savings account balances can all come into play when deciding. Still, by focusing on your credit score you can improve your odds of approval.
Credit Talk
10.02.2020 / Borrowing « Back to all articles
Applying for a Loan, What Lenders Review
If you've ever considered applying for a loan, you've likely found yourself wondering how exactly lenders decide on your creditworthiness. You may know that they check your credit score, but that only adds mystery if you're unsure what makes up this rating. To help demystify the process and make your loan application process more transparent, let's look at what lenders examine on your credit report.
Payment History
The basic definition of creditworthiness is the ability to pay back your loan. One of the best ways to state your ability to pay back your loan is a history of on-time payments. Because of its importance, payment history makes up 35% of your FICO credit score.
A late payment or two may be understandable, depending on the circumstances, although it will likely mean you're offered a higher interest rate or lower loan amount. A history of repeated late or missed payments, especially if they caused you to default on a loan or declare bankruptcy, makes it easy for a lender to deny you a loan.
Current Debt
Your current debt loan comprises 30% of your FICO score. That means the more debt you have, the less likely you are to be approved for a loan.
This is why many financial counselors recommend applying for lines of credit and credit cards when you don’t need them. By the time you’ve hit a financial emergency, your credit may not be in good enough shape to be considered worthy of more credit.
Credit History
Credit history is formed of two parts, each making up a different percentage of your overall FICO score. The length of your credit history, basically the age of your oldest account and the average age of your current accounts, is 15% of your score.
The other aspect of credit history is the type of credit used. It’s better to have a diverse line-up of credit accounts, from revolving credit (like credit cards or lines of credit) to installment loans (such as car loans) to property-backed loans (that is, mortgages). This mix of credit lines is 10% of your FICO score.
Credit Checks
If you’re doing the math, you know we have about 10% of your FICO score unaccounted for. That’s where credit checks and new accounts come in. If you’ve recently opened several credit lines, lenders will be less likely to loan to you as this behavior is associated with rising debt levels. Unless necessary, it’s best not to apply for multiple new credit lines in a brief period.
Other Factors
Your FICO score isn’t the sole consideration for the approval of a loan. Factors like income, your employment history, and your current checking or savings account balances can all come into play when deciding. Still, by focusing on your credit score you can improve your odds of approval.
