If you are looking to open up new credit for a larger purchase, the creditor will take a look at several items in order to decide whether or not they wish to extend credit to you. Knowing what is contained in your credit report is the first step in repairing any negative marks, but we will arm you with the knowledge that creditors use in the consideration of extending you credit.
Your credit report is the most powerful tool that creditors use in order to determine if they should raise your interest rate or charge any fees. As a consumer, you can pull your credit report so that you can see what the creditor sees. Take a long look at the picture that your credit report paints for creditors. Are you a person who has a good source of income, low debts and a stable residence?
Below, we discuss the four items that creditors look at when determining your ability to repay your loans. Prior to applying for new credit, it’s best to take these points into account to gain a better understanding of your credit history from the point of view of the creditor.
Debt to Income Ratio
Creditors who pull your credit report can see your occupation and the bigger picture with regard to how much you’re paying on credit items every month (and when you’re not paying at all). Potential creditors will look at your income level and compare that to how much debt you already have. They will also take into account whether or not you’re in a stable industry and the likelihood that your income will increase over time.
When applying for new credit, consider putting down a more professional sounding title for your occupation. Creditors are likely to extend new credit to an executive level secretary as opposed to an office assistant, but never lie on your application. Also, creditors may contact your place of employment to verify your occupation. Creditors will add up the amounts of your current debts and use that to see how much income is left over for any possible new credit.
Current Credit Limits
Creditors will view your current credit limits to determine if they wish to extend new credit to you. They will know if you are paying your payments on time and if you are maxed out on your credit accounts. If you’ve paid late, creditors will take that into consideration if you request an increase in credit or a new line of credit.
When determining if they wish to extend credit, creditors will check if you own any “real property.” Real Property is any property that is attached to land – residential or rental. Creditors are more likely to extend new credit or credit increases if you own any real property.
In the case of non-payment, creditors may seek litigation in order to attach a lien to any property you may own. In essence, a lien prohibits the sale of your property should you decide to – until the credit loan is satisfied. Even in the case that your property is paid off, creditors have ways to find any assets that you own if you default on your loan. Creditors may litigate on unpaid accounts and placing a lien on your property is a guarantee of payment if you sell your home.
Consistency in Financial Affairs
Creditors will view your credit report in order to get the big picture in your financial history. Not only that, but they will be able to see how long you have lived at your residence, how long you’ve been at the same job, if you rent or own the residence where you live, and whether or not you have checking and savings accounts.
All of the above factors are taken into account by future creditors when you apply for new credit or credit increases. It is best to take a look at your credit report before seeking new credit in order to repair any negative or incorrect marks ahead of time. Overall, if you have a good source of income, own your residence and have a low debt to income ratio, creditors will be more likely to extend new credit to you.