December 27th, 2017 7:27 AM by Jackie A. Graves, President
What do lenders consider when they look at your credit report?
It’s a simple question with a complicated answer, as there are no universal
standards by which every lender judges potential borrowers.
course, there are some items that will decrease your odds of approval just
about everywhere. Looking at what makes up your FICO score (which most people think of as “my credit rating”)
is a good place to start.
than anything else, lenders want to get paid. Accordingly, a potential
borrower’s track record of making on-time payments is of particular importance.
In fact, in calculating a potential borrower’s FICO score, payment history is
the most important factor. It accounts for 35% of the score. Nobody is excited
about loaning money to someone who has demonstrated a less-than-stellar
commitment to repaying his or her debts.
payments, missed payments, mortgage default and bankruptcy are
flags to lenders. As is having an account referred to a collection
agency for lack of payment. While a few blemishes on your
payment history may not stop lenders from giving you money, you are likely to
get approved for a smaller amount of money than you might have otherwise
qualified for, and you are likely to be charged a higher rate of interest.
amounts of outstanding debt are another significant concern to lenders. It’s a
bit of a paradox, but, the less debt you have, the greater your chances of
getting credit. The principle here is similar to that involving payment
history. If you have a large amount of existing debt, the odds that you will be
able to pay it back decrease. Outstanding debt accounts for 30% of your FICO score
long track record of responsible credit use is good for your credit rating. The
frequency with which you use your cards also plays a role. The length of your credit history makes up 15% of your FICO
an established credit history is good for your credit rating. Opening a bunch
of new credit cards in a short amount of time is not. When you suddenly open
multiple credit cards, potential lenders can’t help but wonder why you need so
much credit. They will also have questions about your ability to repay the debt should you
suddenly choose to max out all those cards. New credit accounts for 10% of your
FICO score. If you need a good credit score, take a pass on opening a new
credit card account just to get that free travel mug or umbrella.
credit cards to car
loans and mortgages, there are a
variety of ways consumers use credit. From a lender’s perspective, variety is
good. Lenders want to see that their clients have experience using multiple
sources of credit in reliable ways. FICO score calculations have a 10% weight
of types of credit used.
FICO score and its components provide a good set of general guidelines for the
type of items lenders consider when reviewing applications for credit, but
there’s more to the topic than just your score. Creditors may
have their own proprietary scoring methodologies that use similar, but not
identical factors when determining an applicant’s eligibility for credit.
also worth keeping in mind that, while your credit rating plays an important
role in helping you qualify for credit, it is not the only factor that lenders
consider. Factors such as the amount of income you earn, how much you have
in the bank and the length of time you have been employed are also
reviewed. Also keep in mind that anytime you cosign a
loan for another borrower, the track record of payments on that loan becomes
your track record too.
By James E. McWhinney – To view the original article click here