6 Key Factors That Lenders Use To Determine Your Loan
Borrowing is intermittent need that starts from unemployment period and goes until the last. You never know when you may need it because of emergency expenses, if you don’t have sufficient funds in saving account or don’t want to drain out all the savings to meet out the current unexpected need of extra funds. Lending industry is flourishing as the borrowers trust more than before after the intervention of government that regulates interest rate and other activities of lenders. Different lenders offer the variety of different loan products to meet out the diversity in demand but they also want to be sure of getting the lent money back; therefore, they assess the borrower’s credibility by analyzing different factors. Knowing these eligibility factors may help you get better deal by making these factors better impressive also.
Here, I highlight 6 key factors that your lender considers essentially.
Current profession: The very first thing in your loan application that draws attention of lender is your professional status. If you are in a job with regular and steady earning, the prospects of getting the requested loan increase. The direct lenders offer business loan also but they need the proof of average income. Before applying for a direct loan, arrange the income proof.
Credit Score: Equifax, Experian and CallCredit are three major credit ranking agencies. Different direct lenders use different credit scoring agencies; even, some lenders have their own criteria and tools to judge the borrower’s credit score. More than 77% direct lenders use Experian. Almost 55% lenders check your credit score with Equifax, while, Callcredit is used only by 34% lenders; therefore, calculating your credit score at your own preferably at Experian is better.
Debt-to-Income Ratio (DTI): Debt to income ratio scales the applicant’s capability to manage the repayments. DTI is calculated by dividing the total monthly debts repayment liability by the net average monthly income. All the existing debts including credit card payment, auto loan, home loan, personal loan, payday loan etc are taken in to account. DTI ration helps the lenders to assess how much additional debt you can handle. The low DTI is impressive; the 40% DTI ration is considered the maximum for safe lending.
Credit Report: Most of the borrowers take certified report and credit score as the same thing but it is not so. Credit report contains all the information about previous and current loans, payment history, debt balances, criminal cases filed, bankruptcy report, work location, profession, address etc. The credit report determines the credit score. It has all the details of the people linked financially with you. Any missed, late payment or defaults stays on credit report for six years; therefore, it is must to check and remove any entry more than 6 years old on the credit report.
Credit usage ratio: Credit utilization ration determines how much percentage of borrowed money you use. Higher existing debt draws higher interest rate deal. The average credit usage ration respected by the lenders is below 30%. The ratio under 20% makes you a good borrower.
Types of credit: If you are using all the possible means to borrow, it means you are desperate t get the funds at any cost. The numbers of different natured debts leave the financially tight impression about you; it makes the offered deals costlier. If you apply for a loan too frequently, it means you often go financially off track and may not be able to pay back the debt on time.
Can You Be A Good Borrower By Checking Your Certified Report?
Checking your credit report from time to time to helps you know that no mistakes are there or you didn’t miss any payment because of not knowing it. The checking of credit report doesn’t affect the credit rating. Knowing credit report prepares you for right priced borrowing with the knowledge of possible outcomes. This practice gives you enough time to repair your credit score by paying the small amount dues at priority about which you don’t know how easy it is to do. How frequent should you check your credit report? It depends upon the how fast information at your credit report changes; but, checking it once in two – three months is OK.