Beyond Your Credit Score
Lenders look at your credit score and information from your credit report when deciding whether to lend you money, but that’s only one piece of the puzzle. Watch to learn what lenders consider beyond your credit score:
For more information about what lenders consider beyond your credit score, check out our Credit Health Insights article here.
Video Transcript
Everyone has a credit score—that number used by lenders to determine your credit health. But that's only the beginning. Here's what else they look at when deciding to offer you credit.
First, employment or source of income. How much money do you make? A steady job and a source of income shows you're more likely to have money to make consistent payments in the future.
Second, what's your debt to income ratio? To calculate your debt to income ratio, add up all of your monthly recurring debt payments to divide by your total monthly income. The resulting percentage is your debt to income ratio. So, let's say you earn $4,000 a month, and your total debt payments are $1,550 per month. That's a debt to income ratio of 39%. And for something like a home loan, 43% is often the maximum debt to income ratio allowed.
Third, what about your disposable income? In other words, can you afford to make the new payments you want with the money left over? So, let's say you bring home $4,000 per month, with all your living expense payments totaling $2,400. Housing, utility bills, groceries, credit card payments, you name it. That leaves $1,600. If the monthly payment of the new loan you want is $500, you should have enough money to cover it. Way to go!
The bottom line is this: lenders want to know if you have a history of paying others back, the ability to make regular on time payments, and the stability to continue to pay over time.
Keep these aspects of your finances in order, along with maintaining that credit score. You'll be in a better position to get the credit you need, when you need it.
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