What Do Lenders Like To See?
If you have been through the loan application process before, then you know what it’s like to have a lender examine you and your finances to see if you are deemed worthy of receiving a loan. In an environment where credit is tight and loans are difficult to obtain, there are a few areas that you should try to be particularly strong if you hope to qualify for any type of financing.
Credit Score: Typically the first number a perspective lender will look at is your credit score. This score, and your accompanying credit report, allows a lender to see your borrowing history and to see whether or not you have been reliable in making your payments. A high credit score will reassure a lender that you historically have kept your promises to pay. A low credit score means you might only be able to get a loan with a higher interest rate, or you might not qualify at all.
You should know what’s on your credit report and check it at least once a year to make sure lenders are seeing an accurate financial picture of you. When you see your credit score, put yourself in the shoes of a lender and ask yourself if you would loan money to the person profiled on that credit report.
Income: Over the last few years, “stated income” loans were an easy way to borrow money without having to prove that you earned a certain level of income. Those days are essentially over, and they are a big reason why so many homes are in foreclosure today. A lender is going to want to see proof of employment and evidence of your actual income. Without the ability to prove what you earn, you’re likely to either be turned away or loaned money at a much higher interest rate.
Your income is important so that a lender can calculate your debt-to-income ratio. In other words, they want to see how much of your monthly income will be required to pay all of your monthly obligations. If you have high credit card debt, auto loans, student loans, and other loans outstanding, it will be difficult to keep your debt-to-income ratio at attractive levels for a lender unless you have a very high income.
Strength and Stability: In addition to your income and your credit history, lenders need to see you as someone in a stable situation that will be reliable in making payments. If you have had 6 jobs in the past two years, for instance, a lender will view you as a potential risk. If there are 6 credit cards on your credit report on which you carry balances, a lender is likely to question your ability to continue making payments as you accumulate further debt.
With these three factors in good order, be reliable and cooperative with lenders and it’s possible to obtain a loan, even in today’s credit environment.
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Tags: credit, Credit History, credit score, Debt-To-Income Ratio, Income, loan
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