What lenders look for when applying for credit?

Applying for a loan or credit card is like applying for a job; you should look good on paper. Here is a guide that will show what lenders look for in determining creditworthiness:

Credit History

Your credit history is simply the length of time you've had credit. A long track record of consistent payments will look good in the eyes of the lender.

Payment History

Whether for credit cards, phone bills, car loans or a mortgage, lenders want to see that you pay your bills on time. Making minimum payments is okay, as long as payments are not late. Even one late payment can lower your credit score and impact a lender's decision.

Current Debts

Your debt ratio is a comparison of what you earn to what you owe. Lenders prefer a debt ratio that is less than 40% of income. As an example, if you make $3,000 a month, you should not have more than $1,200 in monthly debt payments.

Collateral

Some lenders will allow you to use your house or car to secure the loan. This reduces the risk to the lender because you have promised the collateral as repayment for the loan if you are no longer able to make payments. Loans secured with collateral may even have lower interest rates.

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