Credit Score

Whether you are applying for a mortgage, a credit card, a personal loan, or car loan, banks and credit unions are going to be looking for the same thing–how much risk they will take on if they approve your loan. Each lending institution has a grading system that is the basis for the decision to offer financing or leasing terms. Understanding what qualifies you for the lowest possible loan rates and monthly payments can be a huge benefit.

Here are the questions that most lending institutions will be asking about you:

Most loan guidelines require two to three years of solid employment history in the same line of work.
Residential stability is an important indicator of a low-risk client, so having the same residential address for at least a year before applying for a bank loan can help your odds. People who move a lot may have financial problems in the eyes of lenders.
Home ownership is preferred.
Traditionally, lenders desire a 40% debt to “gross” income ratio. “Gross” income is calculated BEFORE taxes are taken out.
Due to the prevalence of fraud, income must be able to be verified.
This shows the ability to manage your income and budget requirements.
Multiple cards with balances or maxed out balances show an income less than monthly expenses or an inability to control obsessive or compulsive spending.
Having multiple lines of credit that have been paid in full is attractive to a bank because it indicates your ability to repay and history of repayment. If any of the credit lines are installment loans that were paid in full that is a big plus. An “installment” loan is a loan that has a beginning balance and a term that has monthly payments, like an auto or home loan
The highest amount of money borrowed and repaid in the past is always considered. If you are asking for a $30,000 loan and your previous high credit is $4000, the bank may not want the next loan to be that much more unless the other facts regarding your ability to repay are in line.
If you have been in the credit bureau for many years, there is a lot of history for the bank to consider. However, if you have only been in the credit bureau system for a short period of time, the bank has less information about your ability to repay and they consider it more of a risk.
In some cases, a bank will disregard some slow or poor payment history if an auto loan has been paid well and in full.
This is really the most important factor to any lender. If you have the trend of paying your bills, the banks are more likely to provide lending and overlook issues that were due to a specific situation such as a health issue, an auto accident, identity fraud or some other explainable circumstance.
  

All this information combined determines a credit score. The score is called a beacon score. The lower the beacon score, the higher the risk to the lender, which normally equates to a higher interest rate. The higher the beacon score, the lower the risk is to the lender and the lower the interest rate is for the individual.

The scores are also referenced by “tiers”:

Tier A or 0 (Zero) = 750 or higher – This is the highest tier or ranking and will receive the best terms available from the lender.

Tier C or 2 = 650 to 699 – This segment can normally get decent terms but, certainly not the best available.

Tier D or 3 = 600 to 649 – This segment may or may not get approved. A lot depends on the other credit factors and the equity position desired. A large initial investment goes a long way with the bank for this client. The bank would certainly be more willing to offer terms if the client is in an equity position vs. having negative equity.

Tier E or 4 = 599 or below – Normally this client’s request will have to be reviewed by a credit supervisor who will want to know in more detail about the client’s history.

Put yourself in the lenders shoes. If you were loaning money out of your personal account, you would be very cautious. Every day, banks and credit unions are asked to loan money to people who have not proven to pay their debts. Therefore, in many circumstances, the only justification for leading to such a person is a strong cash investment to lower the bank’s risk of losing. He or she will most likely also have to perform a thorough interview with the lender. However, it is difficult to explain to a lender that a client is serious about re-establishing credit if they have a low initial cash investment. If you cannot provide enough cash up front, the lender will most likely ask for multiple personal references, proof of income, proof of residence or other stipulations before approving the loan.

Here is the good news! We process hundreds of loans and leases each month with the best lenders in the market. Due to our volume, we can normally get a client approved who could not get approved elsewhere and our terms are normally them best. We also have a guaranteed approval program no matter what your credit score. Contact us with questions or the need for financing. We are the last stop on your search for finding the best lending terms available in the market!